Rising debt levels are forcing several Indian states to spend a large portion of their own revenue just to pay interest on past loans. High interest payments leave states with less money to spend on roads, schools, health care and new projects. Reserve Bank of India (RBI) data for FY25 (Budget forecasts) shows that in several large states, interest payments take up to 42% of the states’ own tax and non-tax revenues, limiting the money available for development, welfare, and infrastructure.

West Bengal had the highest interest payment burden among states in FY25. The state generated Rs 1.09 billion in own tax and non-tax revenue, but spent over Rs 45 billion on interest payments. This meant that 42% of its own income went to interest servicing, the highest among the major states.

Punjab followed with an interest burden of 34%. The state earned 70 billion rupees in own revenue and paid close to 24 billion rupees in interest on the debt.

Bihar lagged far behind, spending nearly Rs 21,000 crore on interest with own revenue of Rs 62,000 crore, translating into an interest burden of 33%.

Kerala recorded own revenue of Rs 1.03 billion in FY25, with interest payments of Rs 29 billion. Interest payments accounted for 28% of their income.

Tamil Nadu ranks fifth, despite a much larger revenue base of Rs 2.26 billion, which paid Rs 62 billion as interest. Its interest burden was also 28%, highlighting that higher revenues do not necessarily protect states from high debt service costs.

Haryana spent nearly Rs 25,000 crore on interest with own revenue of Rs 94,000 crore, resulting in an interest burden of 27%.

Rajasthan paid Rs 38 billion as interest on Rs 1.48 billion in revenue, or 25%. Andhra Pradesh reported interest payments of Rs 29,000 crore on own revenue of Rs 1.2 lakh crore, taking its interest burden to 24%.
In ninth place is Madhya Pradesh, which spent Rs 27 billion on interest income of Rs 1.23 crore, with interest accounting for 22% of its own income.

Karnataka earned Rs 2.03 billion in own revenue in FY25 and spent Rs 39 billion on interest payments. Its interest burden stood at 19%, making it the tenth most debt-stressed state due to its high interest payment burden.