**Executive Summary**
On January 23, 2026, the Reserve Bank of India (RBI) released a report titled "State Finances: A Study of Budgets of 2025-26." The report provides an assessment of state government finances for 2025-26, considering the actual and revised accounts for 2023-24 and 2024-25. The report's theme is "Demographic Transition in India - Implications for State Finances."
**Key Points / Main Content**
* **Fiscal Deficit:**
* States' consolidated gross fiscal deficit increased to 3.3% of GDP in 2024-25, exceeding the previous three years' level of below 3.0%.
* The deficit exceeding 3% is mainly due to 50-year interest-free loans from the Centre under Special Assistance to States for Capital Investment.
* States have budgeted a gross fiscal deficit of 3.3% of GDP for 2025-26.
* **Capital Expenditure:**
* The thrust on capital expenditure was sustained.
* Capital expenditure remained steady at 2.7% of GDP in 2023-24 and 2024-25.
* Capital expenditure is budgeted at 3.2% of GDP in 2025-26.
* **Liabilities:**
* Consolidated outstanding liabilities of states remained elevated in the post-pandemic period.
* There is a budget estimate of 29.2% of GDP at end-March 2026.
* **Demographic Transition:**
* Indian states are at different stages of demographic transition, shaping their finances.
* Youthful states have an opportunity due to a larger working-age population and stronger revenue mobilization.
* Aging states face shrinking tax bases and rising committed expenditure.
* Intermediate states need to balance growth priorities with early preparation for aging.
**Impact Analysis**
**State Governments**
* **Impact:** State governments must understand the implications of demographic transition on their finances and adjust fiscal policies accordingly. Ageing States will have to reform healthcare, pension and workforce policies.
* **Action Required:** They need to harness opportunities in youthful states and carefully manage fiscal pressures in ageing states.
**RBI (Department of Economic and Policy Research)**
* **Impact:** The Division of State Finances in the Department of Economic and Policy Research prepared the report.
* **Action Required:** The department will collect and incorporate comments on the publication.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, which released the report.
State Finances: A Study of Budgets of 2025-26: The report released by the Reserve Bank of India, analyzing the finances of State governments.
Mumbai: Location of the Department of Communication, Reserve Bank of India.
प्रेस प्रकाशनी PRESS RELEASE
भारतीय ररज़र्व ब ैंक
RESERVE BANK OF INDIA
वेबसाइट : www.rbi.org.in/hindi संचार वर्भाग, केंद्रीय कायाालय, शहीद भगत ससिंह मागा, फोटा, म िंबई - 400 001
Website : www.rbi.org.in Department of Communication, Central Office, Shahid Bhagat Singh Marg, Fort,
ई-मेल/email : helpdoc@rbi.org.in Mumbai - 400 001 फोन/Phone: 022 - 2266 0502
January 23, 2026
State Finances: A Study of Budgets of 2025-26
Today, the Reserve Bank of India (RBI) released the Report ‘State Finances: A
Study of Budgets of 2025-26’. The theme of this year’s Report is ‘Demographic
Transition in India - Implications for State Finances’. It provides a comprehensive
assessment of the finances of State governments for 2025-26 against the backdrop of
actual and revised/provisional accounts for 2023-24 and 2024-25, respectively.
Highlights:
i. States’ consolidated gross fiscal deficit increased to 3.3 per cent of gross domestic
product (GDP) in 2024-25, after remaining below 3.0 per cent during the previous
three years. The deficit exceeding 3 per cent mainly reflects 50-year interest free
loans from the Centre under Special Assistance to States for Capital Investment,
which is over and above the normal net borrowing ceiling of the States. In 2025-
26, States have budgeted a gross fiscal deficit of 3.3 per cent of GDP.
ii. The thrust on capital expenditure was sustained as capital expenditure remained
steady at 2.7 per cent of GDP in 2023-24 and 2024-25 and is budgeted at 3.2 per
cent of GDP in 2025-26.
iii. The consolidated outstanding liabilities of States remained elevated in the post-
pandemic period with a budget estimate of 29.2 per cent of GDP at end-March
2026.
iv. Indian States are at different stages of demographic transition, which increasingly
shape their finances. Youthful States have a wider window of opportunity due to
an expanding working-age population and stronger revenue mobilisation, which
can be harnessed through higher investment in human capital. In contrast, ageing
States face a narrowing window, with fiscal pressures arising from shrinking tax
bases and rising committed expenditure, calling for higher revenue capacity and
reforms in healthcare, pensions and workforce policies. Intermediate States need
to balance growth priorities with early preparation for ageing.
This publication has been prepared in the Division of State Finances in the
Department of Economic and Policy Research. The current issue, along with past
issues of the Report, are available on the Reserve Bank’s website (www.rbi.org.in).
Comments on this publication can be sent to the Director, Division of State Finances,
Department of Economic and Policy Research, Amar Building (6th Floor), Reserve
Bank of India, Sir Pherozshah Mehta Road, Mumbai - 400 001. Comments can also
be forwarded via e-mail.
(Brij Raj)
Press Release: 2025-2026/1982 Chief General Manager