NEW DELHI: On May 4, 2026 five Indian states West Bengal, Kerala, Tamil Nadu, Assam and Puducherry declared election results and began forming new governments. What rarely makes the headlines is what these governments inherited alongside their mandates debt loads that have been building for years regardless of which party wins.
India’s total outstanding state debt has tripled in a decade. From ₹27.43 lakh crore in 2015 it has grown to a projected ₹93.93 lakh crore in 2025. No state among the five that just went to polls is entering office with a clean fiscal slate.
What New Governments Walked Into
The scale of inherited debt varies by state but the direction is consistent across all of them. West Bengal’s outstanding debt stands at approximately 38% of GSDP as of 2025-26 nearly double the 20% ceiling recommended under the Fiscal Responsibility and Budget Management framework. Its fiscal deficit for 2025-26 is targeted at 3.6% of GSDP against a permitted limit of 3.5%.
Kerala’s position is sharper. The state’s overall liabilities including off-budget borrowings reached 37.84% of GSDP in 2023-24, growing at an average annual rate of 11.61% between 2019-20 and 2023-24. The Congress-led UDF government that returned to power inherited this from the LDF administration. But the LDF itself had inherited a stressed balance sheet when it came to power a decade earlier. The debt did not originate with any single government it accumulated across all of them.
Tamil Nadu tells a similar story. The incoming TVK-led government takes charge of a state where committed expenditure on salaries, pensions and interest payments absorbs 77% of revenue receipts leaving less than a quarter of every rupee the state earns for anything else.
The Addition Problem
Inheriting debt is one part of the story. What new governments usually do adds to this next is the other. Across India’s recent electoral history the pattern is consistent incoming administrations announce welfare expansions and cash transfer schemes within their first budgets. These commitments are not always wrong in intent. Many address genuine deprivation. But they are almost always financed through fresh borrowings rather than revenue generation, adding to the stock of debt the next government will eventually inherit.
In Kerala capital expenditure amounted to just 5.18% of total borrowings in 2023-24, meaning the state was borrowing primarily to fund current consumption and debt repayment rather than building assets. That is the definition of a debt trap borrowing to pay for yesterday while mortgaging tomorrow.
Why It Keeps Happening
The persistence of this problem across different governments and parties points to a structural issue. The all-India average debt-to-GSDP ratio rose from 22% in 2014 to 31% during the pandemic and has since eased to an estimated 28.8% in 2025. But the aggregate improvement masks severe stress in individual states. Sixteen states now carry outstanding liabilities of 30% or more of GSDP as of March 2025.
Three factors drive this consistently. States with slower-growing economies cannot grow their way out of debt. Revenue generation remains weak with most states depending heavily on central transfers. And the electoral cycle creates a structural incentive to announce spending before elections and service the resulting debt after them. States like Kerala, Punjab, Tamil Nadu and West Bengal have recorded revenue deficits persistently above the all-state average across multiple government tenures. The governments changed. The deficits did not.
The Human Cost
Debt at the state level is not an abstract fiscal indicator. It determines what gets built and what gets deferred. In 2023-24 capital expenditure of states amounted to 2.7% of their combined GSDP. That is the money that would have gone into primary health centres, school infrastructure and urban roads. When 75 to 85 cents of every revenue rupee is already committed to salaries, pensions and interest payments the capital budget is the first casualty.
What Needs to Change
The 16th Finance Commission currently deliberating on recommendations for 2026-31 has an opportunity to address these structural pressures. Analysts have consistently pointed to three areas that are stricter FRBM enforcement with real consequences, mandatory disclosure of off-budget borrowings and outcome-linked conditionalities on central transfers. The RBI has flagged that revenue deficit grants from the Centre can paradoxically disincentivise states from improving their own finances.
Whether the new governments in these five states choose to act on the structural problem or add to it will become clear in their first budgets.
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