India's States Budgeted ₹63.6 Lakh Crore of Spending for 2025-26, Raised 58 Per Cent of Their Revenue Themselves and Need the Centre's Consent Under Article 293 to Borrow the Gap

In the budgets they presented for 2025-26, India’s states planned to spend ₹63.6 lakh crore, raise ₹29.8 lakh crore of it themselves, receive ₹21.5 lakh crore from the Centre and borrow ₹11.8 lakh crore to close the gap. Those are the Reserve Bank of India’s totals in State Finances: A Study of Budgets of 2025-26, released on 23 January 2026, which was still the newest edition on the Bank’s publications page in October 2026. A lakh crore is a trillion rupees. The figures cover all states and the Union Territories that have legislatures, and the borrowing equals 3.3 per cent of GDP.

Own revenue is 58 per cent of the ₹51.3 lakh crore the states expect on their revenue account (₹29.8 lakh crore of ₹51.3 lakh crore).

The Governor lays the estimates and the Assembly votes the spending

Article 202 of the Constitution, in force since 26 January 1950, requires the Governor to have an “annual financial statement” of the state’s estimated receipts and spending laid before the legislature every financial year. The statement must show separately the money “charged” on the state’s Consolidated Fund and the money that is not. The Consolidated Fund is the single account into which, under Article 266, all of a state government’s revenues and loans are paid, and nothing can be taken out of it except under a law.

Charged spending is not put to a vote, though members may discuss it. Article 202(3) lists it: the Governor’s salary and office costs, the pay of the Speaker and Deputy Speaker, High Court judges’ salaries, sums needed to satisfy court judgments, and debt charges, meaning interest, sinking fund and redemption costs. The interest line alone is ₹6.2 lakh crore for all states in 2025-26, and the Assembly does not vote on it.

Everything else reaches the Assembly as demands for grants, each made on the Governor’s recommendation (Article 203). The Assembly may agree to a demand, refuse it or cut it. After the grants are voted, an Appropriation Bill authorises the withdrawal. Article 204 bars any amendment that would change the amount or purpose of a voted grant, and says no money leaves the Consolidated Fund except under a law passed this way.

Three provisions cover what an annual cycle cannot: supplementary and excess grants (Article 205), money voted in advance while the full procedure is pending (Article 206), and a Contingency Fund the Governor can draw on for unforeseen needs until the Assembly authorises the spending (Article 267(2)).

In a state with a Legislative Council, a Money Bill cannot start there. Under Article 198 the Council has 14 days to send recommendations back, and the Assembly may accept or reject them, so the Assembly has the last word. Each House writes its own rules of procedure under Article 208. Parliament’s version of the same scheme, with its own dates, is in how the Union Budget is passed, and the Money Bill test is in the piece on Article 110. Article 207 makes the Governor’s recommendation a condition for any Bill that spends from the Fund, a power covered in what a Governor does.

Where the ₹29.8 lakh crore of own revenue comes from

States’ own tax revenue is budgeted at ₹25.5 lakh crore for 2025-26, or 7.1 per cent of GDP, and non-tax revenue at ₹4.4 lakh crore. The Reserve Bank says the state goods and services tax (SGST), sales tax, excise duties and stamp duties and registration fees together make up about 90 per cent of own tax collections.

Article 246A, in force from 16 September 2016, lets both Parliament and every state legislature make laws on the goods and services tax. The GST Council, under Article 279A, includes the Union Finance Minister and a minister from each state, and takes decisions by three-fourths of the weighted votes, with the Centre holding one-third of the weight and all states together two-thirds. The Reserve Bank’s study notes that it is “widely argued” that state taxing power fell once GST absorbed value added tax, octroi and entry tax. The same study finds that stamp duty and registration fees grew faster than sales tax and excise duties, with an average buoyancy of 1.5 in 2017-18 to 2022-23, meaning collections grew about one and a half times as fast as the state economy. Which taxes belong to states in the first place is set by the lists in the Seventh Schedule.

What the Centre sends

Central transfers are ₹21.5 lakh crore in the 2025-26 budgets: ₹14.2 lakh crore as the states’ share of central taxes (4.0 per cent of GDP) and ₹7.2 lakh crore in grants-in-aid. The tax share flows under Article 270 on the percentage the President prescribes after considering the Finance Commission’s advice. The Sixteenth Finance Commission submitted its report on 17 November 2025 and kept the states’ share of the divisible pool, the central taxes that are shared, at 41 per cent for 2026-27 to 2030-31. The Finance Minister’s Budget speech of 1 February 2026 says the Government accepted that figure and provided ₹1.4 lakh crore of Finance Commission grants for 2026-27. How the split between states is worked out is in the Finance Commission article.

Grants moved more than the tax share did. The Reserve Bank’s tables show grants-in-aid at ₹6.4 lakh crore in 2020-21 and ₹5.3 lakh crore in 2023-24, and it attributes the fall to lower GST compensation and post-devolution revenue deficit grants. The Sixteenth Commission does not recommend revenue deficit grants for its award period.

What the money buys

Revenue expenditure, the running costs of government, is budgeted at ₹52.1 lakh crore (14.6 per cent of GDP) and capital expenditure, which builds assets, at ₹11.4 lakh crore (3.2 per cent). Capital spending was 2.7 per cent of GDP in both 2023-24 and 2024-25. The revenue deficit, the part of revenue spending not covered by revenue receipts, is budgeted at ₹0.8 lakh crore, which the Reserve Bank calculates as 6.9 per cent of the fiscal deficit, down from 46.1 per cent in 2020-21. The Reserve Bank reads that fall as a larger part of borrowing going to investment. PRS found that in 2023-24 states used 62 per cent of their revenue receipts for interest, salaries, pensions and subsidies.

Article 293 and the borrowing ceiling

Article 293(1) says a state’s executive power extends to borrowing within India against its Consolidated Fund, within limits its own legislature may fix by law. Clause (2) lets the Government of India lend to states and guarantee their loans. Clause (3) does the work: a state may not raise any loan without the Centre’s consent while any part of a loan from the Government of India, or a loan the Government of India guaranteed, is still outstanding. Clause (4) allows that consent to carry conditions.

The Sixteenth Finance Commission observed that because the Centre has long lent to states, “this condition has been fulfilled at all times for all States”. The Commission also called the mechanism “extremely useful” for fiscal management and recommended that it continue. Each year the Union sets a net borrowing ceiling for each state by letter, as a percentage of its gross state domestic product (GSDP), the value of everything produced inside the state. For 2025-26 PRS records the limit as 3 per cent of GSDP, as the Fifteenth Commission recommended, with an extra 0.5 per cent available for power sector reforms from 2021-22 to 2025-26. The Reserve Bank describes the same arrangement as a 3.5 per cent ceiling including the power sector portion.

The Reserve Bank’s tables show how the consent works as a number. In 2024-25 the Centre sanctioned ₹11,73,714 crore of borrowing under Article 293(3), and states raised ₹10,73,310 crore, or 91.4 per cent of it. For 2025-26 up to the end of September 2025, sanctions were ₹8,85,443 crore and ₹4,66,692 crore had been raised.

One scheme sits outside the ceiling. Since 2020-21 the Centre has lent states money for capital projects for 50 years at no interest under its Special Assistance to States for Capital Investment. In 2024-25 ₹1,49,484 crore of the ₹1.5 lakh crore allocated was released, and the Reserve Bank says the rise of the states’ combined deficit to 3.3 per cent of GDP that year, after three years below 3 per cent, mainly reflects these loans.

How the borrowing is done, auction by auction

Most of it is market borrowing. The Reserve Bank expects market loans to finance about 76 per cent of the 2025-26 fiscal deficit, and says they made up 65.2 per cent of state liabilities in March 2024 and are budgeted at 69.0 per cent by March 2026. States issue State Government Securities, and the Reserve Bank runs the auctions as the states’ cash and debt manager.

In 2024-25 states raised ₹10.73 lakh crore gross, up 6.6 per cent from ₹10.07 lakh crore, across 835 issuances. Net of repayments the figure was ₹7.53 lakh crore. The average yield was 7.2 per cent, 30 basis points (0.30 percentage points) above comparable central government bonds. Two states raised more than ₹1.2 lakh crore each, and one raised nothing. For 2025-26 states budgeted ₹12.45 lakh crore, and had raised ₹4.67 lakh crore by the end of September 2025.

The Reserve Bank publishes a calendar each quarter. On 2 April 2026 it announced expected borrowing of ₹2,54,509 crore for April to June 2026 and began a pilot of a Benchmark Issuance Strategy, in which a state issues bonds of pre-announced maturities on fixed dates. Nine states joined the pilot, and the release of 1 October 2026 extends the scheme from October to December 2026 to 24 states and two Union Territories. Each release says the amount actually raised is announced two or three days before an auction and depends on the state’s need, “approval from the Government of India under Article 293(3)” and market conditions.

Fiscal responsibility laws, debt and the 3 per cent cap

Parliament passed the Fiscal Responsibility and Budget Management Act in 2003, and the Sixteenth Commission records that by 2007 all states except a few had passed laws of their own. In the decade after, states kept their deficit at 2.2 per cent of GDP on average, against 3.8 per cent from 1997-98 to 2004-05, the Commission says. The same chapter adds that some states have since amended their laws to raise deficit or debt targets, and that the laws differ in whether they count guarantees and off-budget items.

The Reserve Bank’s figures for outstanding liabilities, the stock of debt, are ₹93.86 lakh crore (28.4 per cent of GDP) at the end of March 2025 on revised estimates and ₹104.28 lakh crore (29.2 per cent) budgeted for March 2026, below the 31 per cent peak of March 2021. Across the major states the ratio to GSDP runs from 17.8 per cent to 46.3 per cent at March 2026.

For 2026-27 to 2030-31 the Sixteenth Commission recommends capping each state’s fiscal deficit at 3 per cent of GSDP, with the 50-year capital loans counted over and above it. It also recommends that off-budget borrowing, meaning loans taken by state-owned companies whose repayment the government services, be counted in the definition of fiscal deficit and debt, and that the Centre take it into account when it gives consent under Article 293(3).

The question the Supreme Court has yet to answer

Article 293 has never had an authoritative reading from the Supreme Court. In State of Kerala v. Union of India (Original Suit No. 1 of 2024), the State challenged the net borrowing ceiling that the Centre’s letter of 27 March 2023 fixed at 3 per cent of its projected GSDP, or ₹32,442 crore, for 2023-24, covering all sources of borrowing, including the Public Account and some state-owned enterprises. The State argued that the Centre may attach conditions only to loans it makes itself, and that Public Account liabilities and enterprise borrowing are not state borrowing. The Union argued that public finance is a national concern and that counting those liabilities stops a state from slipping past its ceiling.

On 1 April 2024 a two-judge bench of Justices Surya Kant and K.V. Viswanathan declined the interim relief the State sought, which was permission to borrow ₹26,226 crore at once. By then the Union had agreed, in circulars of 8 and 19 March 2024, to consent to ₹13,608 crore of additional borrowing. The same order, citing the lack of any authoritative interpretation of Article 293, referred four questions to a five-judge Constitution Bench, and said its observations have no bearing on the final outcome of the suit. The questions include whether Article 293 gives a state an enforceable right to borrow and how far the Union can regulate it, whether enterprise borrowing and Public Account liabilities fall within Article 293(3), and how far courts can review fiscal policy. The Supreme Court Observer’s case page lists the suit as pending, and we found no ruling from the larger bench in the sources we checked in October 2026.

The Reserve Bank’s calendar of 1 October 2026 expects states to raise ₹3,60,820 crore in October to December 2026, with each auction subject to approval under Article 293(3).