Rising debt levels are forcing several Indian states to devote a large portion of their own revenues just to paying interest on their past borrowings. High interest payments leave states with less money to spend on roads, schools, health care and new projects. Reserve Bank of India (RBI) data for FY25 (Budget forecasts) shows that in several large states, interest payments take away up to 42% of state tax and non-tax revenues, thereby limiting the money available for development, social welfare and infrastructure.
West Bengal had the highest interest payment burden among states in FY25. The state generated Rs 1.09 lakh crore in tax and non-tax revenue, but spent over Rs 45,000 crore on interest payments. This means that 42% of its own revenues were spent on serving interests, the highest among large states.
Punjab followed with an interest burden of 34%. The state earned Rs 70,000 crore in own revenue and paid nearly Rs 24,000 crore in interest on debt.
Bihar was close behind, spending nearly Rs 21,000 crore on interest from its own revenue of Rs 62,000 crore, which translates to an interest burden of 33%.
Kerala reported own revenue of Rs 1.03 lakh crore in FY25, with interest payments of Rs 29,000 crore. Interest payments represented 28% of his income.
Tamil Nadu is ranked fifth, despite a much larger revenue base of Rs 2.26 lakh crore, paid Rs 62,000 crore as interest. Its interest burden also stood at 28%, underscoring that higher revenues do not necessarily protect states from high debt servicing costs.
Haryana spent nearly Rs 25,000 crore on interest out of its own revenue of Rs 94,000 crore, resulting in an interest burden of 27%.
Rajasthan paid Rs 38,000 crore in interest on Rs 1.48 lakh crore in revenue, or 25 per cent. Andhra Pradesh reported interest payments of Rs 29,000 crore on own revenue of Rs 1.2 lakh crore, taking its interest burden to 24%.
In ninth place is Madhya Pradesh, which spent Rs 27,000 crore on interest out of revenue of Rs 1.23 lakh crore, with interest accounting for 22 per cent of its own revenue.
Karnataka earned Rs 2.03 lakh crore in own revenue in FY25 and spent Rs 39,000 crore on interest payments. Its interest burden stood at 19%, making it the tenth most indebted state due to the high interest payment burden.
