In News:

The Comptroller and Auditor General (CAG) of India released the State Finances Publication 2025, providing a comprehensive assessment of revenue, expenditure, debt, and fiscal sustainability across India’s 28 states. The report highlights critical trends in committed expenditure, salary and subsidy bills, and public debt, offering insights for policy planning and fiscal management.

Salary and Subsidy Expenditure

• Over the last decade (2013-14 to 2022-23), states’ salary bills have grown 2.5 times, reaching ?16.6 lakh crore, forming the largest component of committed expenditure.
• Subsidy spending, defined as day-to-day operations that do not create or enhance assets, more than trebled to ?3.09 lakh crore, accounting for 8.61% of total revenue expenditure.
• The distribution of subsidy expenditure is highly uneven. In 2022-23, Punjab, Gujarat, Andhra Pradesh, and Rajasthan spent over 10% of their total expenditure on subsidies, with Punjab at 17%, the highest among states. By contrast, 10 states, including Sikkim, Nagaland, Kerala, and Goa, reported subsidies below 2%, and Arunachal Pradesh recorded no subsidy spending.

Committed Expenditure Patterns

Committed expenditure, comprising salaries, pensions, and interest payments, constituted 43.49% of states’ revenue expenditure in FY 2022-23. The share varied widely across states:

• Nagaland: 74%
• Kerala: 63%
• Tamil Nadu: 51%
• Andhra Pradesh: 42%
• Telangana: 41%
• Karnataka: 33%
• Maharashtra: 32%

In total, 15 states reported committed expenditure exceeding 50% of revenue expenditure, seven between 40–50%, and six below 40%. The report indicates that committed expenditure and subsidies together have frequently exceeded states’ own tax revenues, reaching 102% in 2013-14 and 134% in 2020-21, signaling fiscal pressure and limited flexibility.

Public Debt and Fiscal Risk

Public debt has risen 3.4 times over the last decade, reaching ?59.6 lakh crore, approximately 23% of the combined Gross State Domestic Product (GSDP). This increase in debt, coupled with rising committed expenditure, poses medium-term fiscal risks, necessitating prudent fiscal management and reforms.

Union Tax Devolution and Revenue Sources

States’ major revenue sources include own taxes and non-tax revenues, grants-in-aid, and their share of Union taxes. Between 2013-14 and 2022-23, states’ average share of Union taxes remained around 27% of total revenue receipts, with FY 2022-23 showing the same share.

Distribution of devolved taxes is concentrated:

• Top 5 states (UP, Bihar, MP, West Bengal, Maharashtra) received 50% of devolved taxes.
• Southern states’ shares: Tamil Nadu 4.08%, Andhra Pradesh 4.02%, Karnataka 3.65%, Telangana 2.07%, and Kerala 1.93%.

Policy Implications

The CAG report underscores the rising fiscal pressures on states due to expanding salary bills, high subsidies, and growing debt. With committed expenditure consuming a large portion of revenue, states have limited fiscal space for development and capital investment. The findings highlight the need for targeted reforms in public expenditure management, subsidy rationalisation, and debt sustainability, ensuring that states can maintain service delivery without compromising fiscal health.