Indian state governments spent nearly Rs 1.9 lakh crore on energy subsidies in 2024-25, making power the single largest item in their subsidy bills, according to a report by the Comptroller and Auditor General of India released on June 16.
The CAG’s State Finances 2024-25 report found that 28 states together spent Rs 4.37 lakh crore on subsidies during the year — about 9 per cent of their total expenditure. Energy alone accounted for 43.4 per cent of that amount, or Rs 1.89 lakh crore, used primarily to support power distribution companies and supply electricity at reduced rates to farmers and households.
Subsidy spending as a share of revenue expenditure crossed 10 per cent for the first time, rising to 10.2 per cent in 2024-25 from a post-pandemic average of around 8.5 per cent.
Who Spent the Most
Rajasthan topped energy subsidy spending at Rs 32,572 crore, followed by Karnataka at Rs 26,701 crore, Madhya Pradesh at Rs 18,790 crore, Uttar Pradesh at Rs 17,392 crore, and Maharashtra at Rs 16,094 crore.
Karnataka emerged as the biggest subsidy spender relative to its budget, with subsidies accounting for 14.01 per cent of total expenditure — the highest among all states. The state’s subsidy bill is now roughly double its salary expenditure. Madhya Pradesh, Tamil Nadu, Punjab, Chhattisgarh, and Rajasthan also crossed the 10 per cent mark.
Together, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Rajasthan accounted for Rs 2.3 lakh crore, or 54 per cent of all state subsidies.
At the other end, ten states — mostly smaller northeastern ones including Manipur, Mizoram, Nagaland, Sikkim, and Arunachal Pradesh — spent less than 2 per cent of their budgets on subsidies. The CAG attributed this to smaller consumer bases and limited industrial and irrigation activity.
Agricultural subsidies formed the second-largest category, at Rs 1.30 lakh crore. This covered fertilisers, seeds, irrigation, equipment, and crop incentive schemes. Energy and agriculture together made up about 73 per cent of all subsidy spending. Maharashtra led agricultural subsidy expenditure at Rs 21,815 crore, followed by Madhya Pradesh at Rs 16,600 crore and West Bengal at Rs 16,518 crore.
Debt Is Rising Fast
The CAG report flags a deeper fiscal problem running alongside subsidy growth: state debt has ballooned. Total public debt across states is projected to have risen from Rs 23.92 lakh crore in 2015-16 to Rs 75.52 lakh crore in 2024-25 — a 216 per cent increase over a decade.
Outstanding state debt now stands at 186 per cent of annual revenue receipts. Public debt in 10 states exceeds 30 per cent of their gross state domestic product. In 13 states, total liabilities are above the 32.8 per cent ceiling recommended by the Finance Commission.
Tamil Nadu carries the highest absolute debt at Rs 7.98 lakh crore, followed by West Bengal at Rs 6.12 lakh crore and Rajasthan at Rs 5.02 lakh crore. Measured as a share of state GDP, Nagaland leads at 41.5 per cent, followed by Punjab at 39.9 per cent.
The report notes that several states are borrowing to cover day-to-day revenue deficits rather than build infrastructure — a pattern that compounds fiscal pressure over time.
Little Room Left to Spend
Interest payments on existing loans stood at Rs 5.7 lakh crore in 2024-25 — more than total subsidy spending. States spent Rs 7.71 lakh crore on employee salaries and Rs 5.12 lakh crore on pensions. Together, salaries, pensions, interest payments, and subsidies consumed 87.6 per cent of states’ revenue receipts, up from 85.4 per cent a year earlier.
That leaves fewer than 13 paise of every rupee for discretionary spending on infrastructure, health, education, and new development projects.
Over the past decade, total subsidy spending has risen 214 per cent — from Rs 1.39 lakh crore in 2015-16 to Rs 4.37 lakh crore in 2024-25 — outpacing growth in state revenues and expenditures.
The CAG report does not directly attribute the surge to specific programmes, but analysts note that successive election cycles have pushed states across party lines toward large direct transfer schemes for women, farmers, and other groups — commitments that accumulate year after year in state budgets.
The trend raises a structural question: as committed expenditures crowd out capital spending, states have less to invest in assets that generate future revenue. The CAG report stops short of prescriptions but makes the arithmetic plain — unless revenue growth improves or subsidy commitments are rationalised, fiscal space will keep shrinking.
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