CA Topic

CAG Flags States’ Fiscal Stress

January 7, 2026 en

Brief Context

Context According to the Comptroller and Auditor General of India (CAG), India’s states began FY24 with robust revenue inflows but closed the year facing increasing fiscal strain. Major Findings Total revenue receipts of states were at ₹37.93 lakh crore in FY24. States’ own tax revenue formed the largest component at about 50%, followed by the share in Union taxes at nearly 30%, grants-in-aid at around 12% and non-tax revenue at just over 8%.

Source Content

Syllabus: GS3/Economy

Context

According to the Comptroller and Auditor General of India (CAG), India’s states began FY24 with robust revenue inflows but closed the year facing increasing fiscal strain.

Major Findings

Total revenue receipts of states were at ₹37.93 lakh crore in FY24.
- States’ own tax revenue formed the largest component at about 50%, followed by the share in Union taxes at nearly 30%, grants-in-aid at around 12% and non-tax revenue at just over 8%.
- Over the past decade, the share of own tax revenue and tax devolution has steadily increased, while dependence on grants has declined.
Disparities Among States: States such as Haryana, Maharashtra, Karnataka, Telangana, Tamil Nadu and Gujarat derived more than 60% of their revenue from their own taxes, while several northeastern and hill states, along with Bihar, remained heavily dependent on central transfers.
Rigidity in State Budgets: Committed expenditure such as salaries, pensions and interest payments absorbed a large share of revenue expenditure, with significant variation across states.
GST’s Role: State GST remained the single-largest source of its own tax revenue. It accounted for about 43% of states’ own tax collections.

Debt on States: Public debt of states reached ₹67.87 lakh crore as of March 2024, equivalent to 23.42% of combined GSDP.
- Debt levels varied sharply, ranging from below 20% of GSDP in some states to over 50% in others, highlighting uneven fiscal resilience.
Deficit indicators: Revenue surplus was seen in 16 states whereas revenue deficit was visible in 12 states.
- Sharp rise in deficits is seen in Chhattisgarh, Karnataka, Maharashtra, Rajasthan, Telangana and Uttar Pradesh.
Liquidity Stress: Liquidity stress also emerged as a concern during FY24, with 16 states resorting to ways and means advances (WMA) from the Reserve Bank of India.
- Rajasthan, Andhra Pradesh and Telangana together accounted for about 62% of the total WMA and overdraft availed during the year.
- In contrast, 12 states did not avail of any WMA during FY24, reflecting wide divergence in liquidity positions across states.

Overall Assessment:

Despite improved tax devolution and own-tax collections, state finances remain fragile.
High revenue expenditure, rising committed spending, growing debt and fiscal norm breaches constrain states’ investment capacity and resilience to economic shocks.
The CAG has advised harmonization and rationalization of object heads across the Union and states, to be adopted from FY28, a reform seen as critical to improve the quality of public expenditure data.
- Object heads are a component of the government’s budget and accounting classification system that specify the purpose or nature of expenditure.

Components of Budget

– There are three major components: expenditure, receipts and deficit indicators.
– Total Expenditure can be divided into capital and revenue expenditure.
a. Capital expenditure is incurred with the purpose of increasing assets of a durable nature or of reducing recurring liabilities.
b. Revenue expenditure involves any expenditure that does not add to assets or reduce liabilities.
– The receipts of the Government have three components: revenue receipts, non-debt capital receipts and debt-creating capital receipts.
a. Revenue receipts involve receipts that are not associated with increase in liabilities and comprise revenue from taxes and non-tax sources.
b. Non-debt receipts are part of capital receipts that do not generate additional liabilities, it includes recovery of loans and proceeds from disinvestments.
c. Debt-creating capital receipts are ones that involve higher liabilities and future payment commitments of the Government.
– Fiscal deficit is the difference between total expenditure and the sum of revenue receipts and non-debt receipts. It a. indicates how much the Government is spending in net terms.
b. Positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt.

Source: LM