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India Ratings and Research (Ind-Ra) in its latest report said that it has maintained a neutral outlook on the finances of Indian states for the fiscal year 2024-2025 (FY25), showing States’ aggregate revenue deficit is projected to be 0.4 per cent of gross domestic product (GDP) for FY25, down from 0.5 per cent in FY24. Additionally, the agency expects the aggregate fiscal deficit of all states for FY25 to decrease to 3.1 per cent of GDP, compared to the revised figure of 3.2 per cent in FY24.

The report underscores the containment of revenue deficits, which provides greater fiscal flexibility to states, enabling them to sustain focus on capital expenditure (capex) projects. Anuradha Basumatari, director of Public Finance at Ind-Ra, emphasised the favorable conditions for capital expenditure, stating, “Containment of the revenue deficit provides greater fiscal flexibility to states, which is favourable to capital expenditure and is expected to continue in FY25.”

Besides, the report analyzed the budgets of 26 states (excluding Arunachal Pradesh and Sikkim), revealing a budgeted decline of 7.4 per cent in grants from the center for FY25 compared to the revised estimate for FY24. Consequently, Ind-Ra expects revenue expenditure to grow by 8.7 per cent yoy in FY25, commensurate with the projected growth in revenue receipts.