The combined fiscal deficit of 15 Indian states is projected at Rs11.5 lakh crore in FY27, as weaker tax receipts and grants offset continued infrastructure spending.
States across India are likely to face larger revenue and fiscal gaps in financial year 2027 than they had pencilled in, as weaker-than-expected tax inflows and grants coincide with continued pressure to spend on infrastructure. Deccan Chronicle reported that the combined fiscal deficit of 15 states is now estimated at Rs11.5 lakh crore, or 3.1% of gross state domestic product, above the Budget Estimate and the provisional outcome for FY26. The combined revenue deficit is also expected to stay elevated at about Rs2.8 lakh crore, leaving little room for a quick repair in state finances.
The newspaper said the deterioration reflects a mix of slower revenue growth and heavier capital spending. Revenue receipts for the sample states are projected to rise by 10.9% in FY27, far below the 23.5% increase assumed in the budget. Own tax revenues are still expected to grow at a double-digit pace, helped by higher state goods and services tax collections and sales tax receipts, but that would still mark a steep slowdown from official projections. Grants from the Centre are also expected to rise, though at a more modest pace than states had hoped for.
On the spending side, capital outlay is set to remain firm even as the gap between plans and execution narrows. Deccan Chronicle said the sample states are expected to spend Rs8.7 lakh crore on capital expenditure in FY27, below the Rs10 lakh crore outlined in budget documents but still 14.1% above the previous year. Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh and Maharashtra are among the states whose capital spending may come close to, or exceed, the levels they had set out in their budgets.
Broader market commentary points in the same direction. India Ratings and Research has projected that the aggregate fiscal deficit of states will rise to around 3% of GDP in FY27, while Standard Chartered has put the figure slightly lower at 2.9%, citing slower revenue growth, high spending and continued capex. India Ratings has also argued that if special central capital assistance is included, the headline deficit could widen further, underscoring how dependent state finances remain on the pace of revenue recovery and support from New Delhi.
The Deccan Chronicle report also noted a constraint that may work in states’ favour: the absence of extra borrowing over the 16th Finance Commission’s recommended ceiling of 3% of GSDP in FY27 could force some states into a smaller deficit ratio than they might otherwise record. Even so, with borrowing and capex-linked loans still expected to finance much of the gap, the outlook suggests that states are likely to keep spending on assets while remaining under clear fiscal pressure.
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