States’ aggregate expenditure rose sharply by 131 per cent between 2015-16 and 2024-25, keeping pace with economic growth, as they focused on welfare and development activities, said a CAG report on Tuesday.
Revenue expenditure continued to dominate budgets, averaging over 83 per cent of total spending, while capital expenditure increased in absolute terms but remained a relatively smaller share.
"Social and economic services together accounted for about two-thirds of total expenditure, reflecting states’ focus on welfare and development," said the CAG's Publication on State Finances 2024-25.
The report was released by the Comptroller and Auditor General of India (CAG), K Sanjay Murthy.
Committed expenditure and subsidies consistently absorbed more than half of revenue expenditure, reaching 53.31 per cent in 2024-25, with subsidies growing particularly rapidly.
At the disaggregate level, states’ expenditure remained concentrated in 8 object categories -- including 3 types of grants-in-aid, salaries, pensions, interest payments, subsidies and major works -- accounting for nearly 78.46 per cent of total spending and about 12.38 per cent of combined Gross State Domestic Product (GSDP).
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This reflects the continued dominance of committed and obligatory expenditures in state budgets, the report said.
Total expenditure of the states increased from Rs 22.18 lakh crore in FY 2015-16 to Rs 51.20 lakh crore in 2024-25, an increase of 131 per cent.
"Over the period 2015-16 to 2024-25, despite a substantial increase in total expenditure, the expenditure structure remained largely unchanged, with salaries, pensions, interest payments, subsidies and grants together absorbing a substantial share, indicating fiscal rigidity," it added.
A 10-year trend analysis over 2015-16 to 2024-25 shows that states’ budgetary spending ranged between 15.78 per cent in FY25 and 17.49 per cent in FY17 of the total combined GSDP.
In 2024-25, the sectoral expenditure on the general sector, social sector and economic sector accounted for 29.79 per cent, 39 per cent and 28.68 per cent, respectively, of the total expenditure of Rs 51.20 lakh crore.
The composition of expenditure across sectors showed that capital outlay accounted for 5.28 per cent of spending in the general sector, 31.60 per cent in the social sector, and 62.71 per cent in the economic sector.
"This pattern highlights that the economic sector -- covering areas such as infrastructure, industry, and trade -- attracts the bulk of capital investment, while the general sector, which includes administrative and fiscal functions, is predominantly revenue-oriented in nature," the report said.
States’ Own Tax Revenue (SOTR) is the largest component of revenue receipts, rising significantly in absolute terms and increasing its share from about 49.55 per cent to nearly 50.13 per cent, although its buoyancy weakened in FY 2024-25 over 2023-24.
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