The Reserve Bank of India's annual State Finances report, released in March 2026, identifies eight states where interest payments on accumulated debt have crossed a threshold that economists consider fiscally dangerous: the interest obligation now exceeds the combined state expenditure on education and health. Punjab leads the list, with interest payments consuming 23.4% of its total revenue receipts — leaving only ₹0.78 for every rupee of debt service to fund all other government functions. Rajasthan, Himachal Pradesh, Bihar, West Bengal, Andhra Pradesh, Jharkhand and Chhattisgarh follow.
States in Debt Stress — Key Indicators (2025–26)
- Punjab: interest = 23.4% of revenue; debt-to-GSDP: 48%
- Rajasthan: interest = 19.1% of revenue; debt-to-GSDP: 38%
- Himachal Pradesh: interest = 18.6% of revenue; heavily dependent on central grants
- Bihar: interest burden growing at 12% YoY despite special category status grants
- RBI 'high-stress' threshold: interest > 15% of revenue receipts
- Average for non-stressed states: 8.2%
“These states are caught in a debt spiral — they borrow to pay salaries and pensions, which means they have nothing left for capital expenditure, which means growth stalls, which means revenues fall, which means they borrow more.”
— Dr. M. Govinda Rao, former member, 14th Finance Commission
8
High-stress states
23.4%
Punjab's interest burden
48%
Punjab debt-to-GSDP
15%
RBI stress threshold
How did this story make you feel?
Arjun Menon
Economy & Data Reporter
Arjun specialises in public finance, budget analysis and economic data journalism. Former researcher at NIPFP.