Rising debt levels are forcing several Indian states to spend a large part of their own revenues just to pay interest on past borrowings. High interest payments leave states with less money to spend on roads, schools, healthcare, and new projects. Reserve Bank of India (RBI) data for FY25 (Budget Estimates) shows that in several large states, interest payments take away up to 42% of states’ own tax and non-tax revenues, limiting money available for development, welfare, and infrastructure.
West Bengal had the highest interest payment burden among states in FY25. The state generated Rs 1.09 lakh crore in own tax and non-tax revenue but spent over Rs 45 thousand crore on interest payments. This meant 42% of its own revenue went towards interest servicing, the highest among major states.
Punjab followed with an interest burden of 34%. The state earned Rs 70 thousand crore in own revenue and paid nearly Rs 24,000 crore as interest on debt.
Bihar was close behind, spending almost Rs 21 thousand crore on interest out of own revenue of Rs 62 thousand crore, translating into an interest burden of 33%.
Kerala reported own revenue of Rs 1.03 lakh crore in FY25, with interest payments of Rs 29 thousand crore. Interest payment accounted for 28% of its revenue.
Tamil Nadu is ranked fifth, despite a much larger revenue base of Rs 2.26 lakh crore, paid Rs 62 thousand crore as interest. Its interest burden was also 28%, highlighting that higher revenues do not necessarily shield states from high debt servicing costs.
Haryana spent nearly Rs 25 thousand crore on interest against own revenue of Rs 94 thousand crore, resulting in an interest burden of 27%.
Rajasthan paid Rs 38 thousand crore as interest out of Rs 1.48 lakh crore in revenue, or 25%. Andhra Pradesh reported interest payments of Rs 29 thousand crore on own revenue of Rs 1.2 lakh crore, taking its interest burden to 24%.
At ninth place is Madhya Pradesh, which spent Rs 27 thousand crore on interest from revenue of Rs 1.23 lakh crore, with interest forming 22% of its own revenue.
Karnataka earned Rs 2.03 lakh crore in own revenue in FY25 and spent Rs 39 thousand crore on interest payments. Its interest burden stood at 19%, making it the tenth most debt-stressed state due to high interest payment burden.
