Top 10 Indian States and UTs by Debt-to-GDP Ratio in FY 2025–26

India, now the fourth-largest economy in the world, recently surpassed Japan and is poised to overtake Germany within the next 2.5 to 3 years, according to NITI Aayog CEO B.V.R. Subrahmanyam. As the fastest-growing large economy, India’s GDP trajectory reflects strong macroeconomic fundamentals, driven by expanding manufacturing, digital services, and infrastructure investments.

However, economic growth must be weighed against fiscal health. A critical measure in this context is the debt-to-GDP ratio, which evaluates a government’s total outstanding debt relative to its gross domestic product.

India’s National Debt Outlook

According to the International Monetary Fund (IMF) and the Fiscal Monitor debt-at-risk analysis, India’s overall debt-to-GDP ratio stands at 80.4%—a significant figure for a developing economy. In a landmark fiscal reform, the central government has committed to transitioning toward a debt-to-GDP ratio as a fiscal anchor starting from FY 2026–27, aiming for a target range of 50±1% by March 31, 2031.

This strategic shift underscores the government’s commitment to fiscal consolidation while ensuring long-term debt sustainability.

Debt-to-GDP Ratio: Why It Matters

Jammu & Kashmir Tops the List with the Highest Debt Burden

As per PRS Legislative Research and compiled by Forbes India, Jammu and Kashmir holds the highest debt-to-GDP ratio among Indian states and UTs in FY 2025–26, recorded at 51%. This means the region’s total debt is more than half of its economic output. Despite ongoing central support and union territory status, structural challenges, regional instability, and underdeveloped industries contribute to its fiscal stress.

Northeast States Display Persistent Fiscal Vulnerabilities

Several northeastern states feature prominently in the top 10 list, pointing toward deep-rooted economic disparities. These states often face:

• Limited industrial bases
• Sparse population and geographic isolation
• Heavy reliance on central transfers
• Persistent infrastructure gaps

Notable mentions include:

• Nagaland – 47.8%
• Arunachal Pradesh – 45.9%, coupled with an exceptionally high fiscal deficit of 8.9%
• Mizoram, Sikkim, and Meghalaya – all with debt ratios nearing or above 37%

These figures reflect the need for structural fiscal reforms and increased investments in self-sustaining economic activities.

Punjab and Himachal Pradesh: High Debt Amid Slow Revenue Growth

Punjab (44.5%) and Himachal Pradesh (40.5%) also report elevated debt ratios, largely due to:

• Rising subsidy burdens
• Low tax revenue mobilisation
• Persistent deficits in public sector undertakings

While these states are not as geographically isolated as their northeastern counterparts, populist spending patterns and slow economic diversification have constrained their fiscal capacity.

Bihar and West Bengal: Debt Challenges in Large Populous States

Two of India’s more populous states, Bihar (37%) and West Bengal (38%), are also among the top 10. These states face challenges such as:

• Large welfare commitments
• Subdued private sector investment
• Slower-than-expected GDP growth

Bihar’s reliance on agriculture and central schemes, coupled with West Bengal’s high legacy debt, adds pressure to their fiscal balance.

The Complete List: Top 10 Indian States/UTs by Debt-to-GDP Ratio (FY 2025–26)

The Flip Side: States with Low Debt and Strong Fiscal Discipline

On the positive side, Odisha leads as the state with the lowest debt-to-GDP ratio, currently at 12.7%. Its sound fiscal health is attributed to:

• Efficient mining revenue mobilisation
• Rapid expansion of the manufacturing sector
• Strict control over non-productive expenditure

Other large states like Maharashtra (18.4%), Gujarat (15.3%), Karnataka (24.9%), and Tamil Nadu (26.1%) have moderate debt levels, showing signs of fiscal prudence, despite high capital spending and welfare outlays.