‘Each state is unique, but when it comes to finance, the fundamentals cannot be different.’

IMAGE: Finance Minister Nirmala Sitharaman at the launch of the NITI NCAER States Economic Forum portal developed by Niti Aayog at the Dr Ambedkar International Center in New Delhi, April 1, 2025. Photograph: Shrikant Singh/ANI Photo

Raising money is as important as managing debt, and while borrowing may be tempting, it must align with present realities, Finance Minister Nirmala Sitharaman said on Tuesday, referring to trends in state finances.

Speaking at the launch of the States Economic Forum by NITI Aayog and the National Council of Applied Economic Research, Sitharaman said, “Each state is unique, but when it comes to finance, the fundamentals cannot be different.

“My debt-to-gross state domestic product (GSDP) ratio cannot be three times more than my GSDP, and some states cannot constantly do a fantastic job of it and then stand out as good-performing states.”

The Forum will address a critical information gap in the current economic discourse — comparative and disaggregated studies on state finances.

It will produce in-depth reports and analyses on states across six domains, including demography, economic growth, socio-economic indicators, public finances, and state fiscal rules.

Stressing that there can be no politics when it comes to the country’s finances, both at the Centre and in states, the FM said that just as there is a struggle to become a faster-growing economy, there is also a challenge in containing borrowing.

“Countries have become debt-ridden, and it is going to take a generation for them to even reach acceptable levels, let alone ideal levels. It’s not for lack of data. They know it.”

While praising the Forum for meaningfully presenting data in an area where, often due to concerns over authenticity, it is not accepted, particularly by states, she said, “Data gives you the hard truth — states that call themselves developed are ridden with huge debt.”

In a lighter vein, she noted how senior bureaucrats adopt a different stance when they are in state governments.

“I wish all of them got posted in the finance ministry. When they are in some departments, they say, ‘No way, you have to give this’.

“Post them as the expenditure secretary, and the voice changes, the priorities change. But that’s the closer look at the data,” she said.

NITI CEO B V R Subrahmanyam said the Forum would provide an alternative engagement mechanism with states, one that is less confrontational than the usual Centre-state engagements.

In January 2025, the government think-tank released its first Fiscal Health Index, raising concerns about the debt sustainability of states like West Bengal and Punjab.

Poonam Gupta, director general, NCAER, said debt levels have increased in all but four of the 28 states between 2013 and 2023.

In its summary report on states, NCAER noted that the per capita income of richer states has been growing faster than that of poorer states.

At the current pace, some states will cross the income threshold of a rich economy, while several others will lag.

Finance Secretary Ajay Seth had earlier told the Standing Committee on Finance that the government’s plan to bring down the debt-to-GDP ratio to 50 per cent by 2031 would not be sufficient to reduce overall general debt in the country.

States, too, would need to lower their debt-to-GSDP ratio.

Last week, the Centre announced its plan to borrow Rs 8 trillion from the market in the first half of 2025-2026, about 54 per cent of the total gross market borrowing target of Rs 14.82 trillion.

Feature Presentation: Ashish Narsale/Rediff.com