Why in News?
The Comptroller & Auditor General of India released the State Finances Publication 2025, an annual report that analyses expenditure patterns of state governments. The report highlighted a steep rise in salary bills and subsidies over the past decade, raising questions about fiscal sustainability.
Historical Trends
- Rising salary bills: Between 2013–14 and 2022–23, states’ salary expenditure rose roughly two and a half times, reaching more than ₹16 lakh crore.
- Expanding subsidies: Subsidy outgoes tripled to over â‚ą3 lakh crore. Punjab spent around 17 % of its total expenditure on subsidies, the highest share among states.
- Committed expenditure: Wages, pensions and interest payments accounted for over 43 % of states’ revenue expenditure. In Nagaland this figure exceeded 70 %, indicating little room for developmental spending.
- Public debt: Combined debt of states increased more than three‑fold to nearly ₹60 lakh crore – about 23 % of their combined GDP – posing medium‑term fiscal risks.
- Tax devolution: Although the Centre’s share of taxes going to states remained around 27 %, five large states (Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal and Maharashtra) received half of the devolution amount.
Implications
- Fiscal stress: High committed expenditure limits spending on health, education and infrastructure. Rising debt could crowd out future investments.
- Policy debate: The findings rekindle discussions on balancing welfare subsidies with fiscal prudence. States must manage salary revisions and freebie schemes carefully.
- Union–state relations: Variations in tax devolution highlight the need for equitable distribution and stronger own‑revenue generation by states.
Way Forward
- Rationalise expenditure: Review subsidy schemes for targeting efficiency and phase out those with poor outcomes.
- Enhance revenue: Broaden the tax base by improving GST compliance and property tax collection, and reduce dependence on central transfers.
- Debt management: Adopt prudent borrowing strategies and prioritise capital projects that generate future revenues.
- Transparency: Publish detailed budget documents and undertake social audits to build public trust.
Conclusion: The CAG’s report serves as a timely reminder that sustainable public finance is essential for long‑term development. States need to balance welfare commitments with fiscal discipline to ensure inclusive growth.