Indian states spent nearly Rs 1.9 lakh crore on energy subsidies in 2024-25, making power support the largest component of their subsidy bill, according to the CAG.
The report says energy accounted for 43.4% of total state subsidy spending, followed by agriculture and allied activities.
States spent Rs 4.37 lakh crore on subsidies during the year, but interest payments on old loans were higher at about Rs 5.67 lakh crore.
The CAG says rising debt, salaries, pensions and interest payments are reducing the fiscal space available for development and capital investment.
Indian state governments spent nearly Rs 1.9 lakh crore on energy subsidies in 2024-25, making power support the largest component of their subsidy bill, according to a report by the Comptroller and Auditor General of India (CAG).
The CAG’s State Finances 2024-25 report says states spent Rs 4.37 lakh crore on subsidies during the year, about 9 per cent of their total expenditure. Of this, Rs 1.89 lakh crore — or 43.4 per cent — went to the energy sector.
The support was mainly used to provide financial assistance to power distribution companies, supply electricity at subsidised rates to domestic and agricultural consumers, and compensate for revenue losses in the power sector.
But the report also points to a wider fiscal squeeze. States spent more on interest payments on old loans than they did on subsidies. Interest payments stood at about Rs 5.7 lakh crore in 2024-25, exceeding total subsidy spending by around Rs 1.3 lakh crore. The report says state subsidy expenditure has risen sharply over the past decade, from Rs 1.39 lakh crore in 2015-16 to Rs 4.37 lakh crore in 2024-25 — an increase of 214 per cent.
Energy and agriculture together accounted for about 73 per cent of all subsidies given by states in 2024-25. Other sectors, including food and civil supplies, transport, industry, education and social welfare, accounted for the remaining 26.76 per cent.
The energy sector received the largest share of state subsidies in 2024-25. Rajasthan spent the most on energy subsidies, at Rs 32,572 crore, followed by Karnataka with Rs 26,701 crore, Madhya Pradesh with Rs 18,790 crore, Uttar Pradesh with Rs 17,392 crore and Maharashtra with Rs 16,094 crore.
Power subsidies are politically and socially significant in India, where state governments often subsidise electricity for farmers and households. But they also add pressure to state budgets, especially when power distribution companies face persistent financial losses.
Agriculture and allied activities formed the second-largest subsidy category. States spent Rs 1.30 lakh crore on agricultural subsidies in 2024-25. This included support for fertilisers, seeds, irrigation, agricultural equipment and crop-related incentive schemes.
Maharashtra spent the most on agricultural subsidies, at Rs 21,815 crore. It was followed by Madhya Pradesh at Rs 16,600 crore, West Bengal at Rs 16,518 crore, Karnataka at Rs 12,902 crore and Gujarat at Rs 11,807 crore.
The CAG report says states’ dependence on borrowing has increased rapidly over the past decade. Total public debt of states is projected to have risen from Rs 23.92 lakh crore in 2015-16 to Rs 75.52 lakh crore in 2024-25 — an increase of 216 per cent over 10 years.
Outstanding state debt has reached 186 per cent of their annual revenue receipts, according to the report. It says several states are using borrowings to cover revenue deficits rather than create capital assets, adding to fiscal pressure.
Tamil Nadu had the highest public debt as of March 2025, at Rs 7.98 lakh crore. It was followed by West Bengal at Rs 6.12 lakh crore, Rajasthan at Rs 5.02 lakh crore and Andhra Pradesh at Rs 4.95 lakh crore.
Measured against the size of the state economy, Nagaland had the highest public debt at 41.5 per cent of gross state domestic product. Punjab followed at 39.9 per cent, Arunachal Pradesh at 38.8 per cent and Meghalaya at 36.6 per cent.
The report says public debt in 10 states is above 30 per cent of Gross State Domestic Product or GSDP. Total liabilities in 13 states are above the 32.8 per cent limit suggested by the Finance Commission.
The CAG report says rising debt is now having a visible impact on state budgets. Interest payments, along with salaries and pensions, are committed expenditures that cannot easily be deferred. This reduces the money available for development schemes, infrastructure and capital investment.
In 2024-25, states spent Rs 7.71 lakh crore on employee salaries and about Rs 5.12 lakh crore on pensions. Together, these accounted for about Rs 12.84 lakh crore, or roughly 25 per cent of total state expenditure.
If grants-in-aid for salaries of employees in autonomous institutions, universities and local bodies are included, salary spending rises to Rs 11.07 lakh crore. On that measure, combined spending on salaries and pensions reaches about Rs 16.2 lakh crore.
The report says this shows a large share of state budgets is being used to meet employee and pension obligations. Along with rising interest payments and subsidy commitments, this limits the fiscal space available for new development projects and infrastructure spending.