Sunday, 14 Sep, 2025
By: Anshul Vipat
The Reserve Bank of India has named Bihar, Kerala, Punjab, Rajasthan and West Bengal as highly stressed states
The Reserve Bank of India (RBI) has warned some states with high indebtedness requiring urgent corrective measures by cutting down expenditure on non-merit goods. The article by a team of economists under the guidance of deputy governor Michael Debabrata Patra named Bihar, Kerala, Punjab, Rajasthan and West Bengal as highly stressed states.
According to the report, Kerala, Rajasthan and West Bengal are projected to exceed the debt-GSDP ratio of 35% by 2026-27. The story from Kerala is more worrying as the state is projected to surge by a whopping seven percent in seven years from 31.3 percent in 2019-20 to 38.2 percent of the GSDP in 2026-27. The debt of the state has already hit 37.18 in 2020-21.
While freebies are less in Kerala, interest payments, salaries, pensions and administrative expenses accounts for significant portion of the total revenue expenditure of the state.
Kerala also figures in the list of states whose share of revenue expenditure is over 90%. The southern state along with Rajasthan and West Bengal — are projected to surpass the commission’s targets for debt and fiscal deficit in 2022-23.
According to RBI, the primary reason is relaunch of the old pension scheme by some states, rising expenditure on non-merit freebies; expanding contingent liabilities; and the ballooning overdue of discoms - warranting strategic corrective measures.
The story of Punjab is no different. The state, which was the wheels of Indian economy, is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27. The recently-elected AAP government in the state had announced 300 units of free electricity to every household. Even by the most conservative estimates, it is expected to increase the subsidy bill, by at least Rs 5,000 crore.
Last month, Chhattisgarh and Rajasthan had walked out of new pension scheme and had reintroduced the old (defined benefit) pension scheme. According to reports, 56 percent of Rajasthan's revenue and 41 percent of Chhattisgarh’s revenue is spend on salaries and pensions.
The alarming figure also raises a serious question on freebie schemes given away by newly-elected governments. Comptroller and Auditor General of India (CAG) data suggests the state governments' expenditure on subsidies has grown at 12.9% and 11.2% during 2020-21 and 2021-22.
The added burden on the economy also put breaks on states' capacity to commit more finances to critical social sectors like health & education. This speaks volumes for the deleterious impact of the culture of freebies that can spell doom for the economy of a state. Freebies being at the foundation on which victory is secured, the concerned parties are prone to promising them election-after-election.
