FRBM Gap
While post-pandemic fiscal consolidation along with healthy nominal GDP growth, has supported states’ debt consolidation to 28.4% of the GDP in FY25 from 31% in FY21, debt levels remain sticky, a research note from Care Edge shows.
Several states such as Punjab, Bihar, West Bengal Rajasthan, Kerala and Andhra Pradesh have a debt-to-GSDP ratio much above the Fiscal Responsibility and Budget Management (FRBM) target of 20%. However, despite the elevated debt levels, states’ interest payments as a percentage of revenue receipts have moderated in the post-COVID period.
Easing the Burden
The Centre’s interest-free loans to states for capital investment have played a pivotal role in lowering the states’ debt repayment burden.