Total expenditure of the state is dominated by revenue expenditure. The total revenue expenditure of the 19 sample states increased to Rs. 40.4 trillion in FY2025 PA from Rs. 30.3 trillion in FY2022, reporting a CAGR of 10.1%, higher than the CAGR of 9.4% for revenue receipts (to Rs. 38.2 trillion from Rs. 29.1 trillion) in that period. Notably, the GSDP (at current prices) of the 19 states recorded a CAGR of 12.5% during FY2022-FY2025.

The deficit and debt targets of governments are assessed relative to the size of the economy. For the state governments, the Finance Commission (set up by the President of India every five years) recommends the target of fiscal deficit in terms of a percentage of gross state domestic product for a period of five years. Therefore, it is important to analyse the components of the fiscal deficit i.e., receipts and expenditure of the states relative to the GSDP.

EXHIBIT: Trends in deficits and capital expenditure as a % of GSDP