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Informist, Wednesday, Feb. 18, 2026

 

NEW DELHI – Higher revenue expenditure and sustained capital expenditure will likely drive the aggregate fiscal deficit of states to 3.5% of gross domestic product in 2026-27 (Apr-Mar) from an expected 3.0% in FY26, India Ratings and Research Pvt. Ltd. said in a report. The rating agency maintained a neutral outlook on the finances of Indian states in FY27.

 

India Ratings expects state revenue expenditure to grow 11.2% in FY27, above historical trends, led by welfare schemes and additional cost-sharing obligations arising from the Viksit Bharat - Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025. "The agency believes the expenditure obligation would be higher in states such as Andhra Pradesh, Bihar, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil Nadu, and Uttar Pradesh. These states could incur incremental revenue expenditure in the range of INR 21 billion to INR 40 billion to fund the state-level share," the rating agency said.

 

India Ratings estimates state capital expenditure to grow 16.4% and the capex-to-GDP ratio to improve to 2.9% in FY27. "The strong focus on capital expenditure is underpinned by the INR 1.85 trillion allocation under the Special Assistance to States for Capital Investment scheme in the FY27 Union Budget and the incentive structure under the 16th Finance Commission roadmap, which excludes Special Assistance to States for Capital Investment loans from the fiscal deficit limit of 3.0% of gross state domestic product. The continued focus on capital expenditure will bolster medium-term growth and support fiscal stability," India Ratings Director for Public Finance Anuradha Basumatari said.

 

The rating agency expects aggregate revenue receipts to grow 9.0% in FY27, supported by states' own tax revenue performance and tax devolution. The GST rationalisation may provide an upside to states' own tax revenue collection in FY27 on the back of a likely pick-up in consumption and economic activity, it said.

 

States' aggregate debt burden is projected to increase to 29.8% of GDP in FY27 from an estimated 29.0% in FY26, driven by higher capital spending, including Special Assistance to States for Capital Investment scheme-funded asset creation. Among the major states, the growth in capex was the most pronounced in Andhra Pradesh, Telangana, Gujarat, Haryana, Maharashtra, Madhya Pradesh, Bihar and Karnataka, the rating agency said.  End

 

Reported by Sagar Sen

Edited by Saji George Titus

 

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