By Editor India is the fastest-growing major economy, and it recently surpassed Japan to become the world’s fourth-largest economy. Still, behind this growth story lurks a serious challenge—the country’s debt burden. The IMF’s Fiscal Monitor report indicates that the country’s debt-to-GDP ratio stands at 80.4 percent, prompting the central government to adopt a new fiscal anchor. Starting 2026-2027, the debt-to-GDP ratio will guide fiscal policy, with a target of reducing it to 50±1% by March 2031.
At the state level, the picture is even more complex. India as a federation allows its states lending money for development, social welfare, and infrastructure. However, unchecked borrowing has pushed several states into high debt levels, raising concerns about financial stability. Interesting to know which Indian state has the highest debt in 2025? Let’s quickly have a look at the top names –
1. Jammu & Kashmir
J&K is at the top of the list of Indian states and union territories with the highest debt to GSDP ratio, with approximately 51 percent in FY 2025-2026. This debt level is much higher than the 28 per cent suggested by the 15th Finance Commission, posing a serious fiscal challenge.
The high debt burden is due to structural constraints, such as limited revenue generation capacity, heavy dependence on central transfers, and high expenditure on administration, infrastructure, and public services. Security-related expenses and development demands in hilly and remote locations are another major reason.
2. Nagaland
Nagaland is the 2nd-highest financially stressed Indian state, with a debt-to-GSDP ratio of 47.8% in FY 2025-2026. While its financial deficit is estimated at about 3% of GSDP, the state’s debt level is still a concern. The following are the key reasons: the narrow revenue base, high dependence on central government grants, and increasing expenses on salaries, pensions, and administration costs. A small, hilly state with limited industrial activity, Nagaland is struggling to generate enough internal revenue to maintain its expenditure.
3. Arunachal Pradesh
Andhra Pradesh ranks the 3rd among the most indebted states in India, with a debt-GSDP ratio of 45.9% in FY 2025-2026. What makes the matter more tense is that it has a fiscal deficit of 8.9%, which is the highest ever.
Its debt stress occurs from heavy capital expenses on connectivity, infrastructure, and welfare programs, along with a small economic base and limited avenues for revenue generation. Offering public services in remote, mountainous areas costs more, resulting in financial stress.
Although central government transfers play an important role in stabilising the economy, a high debt ratio reflects fiscal vulnerability. If it is left unchecked, this imbalance may restrict AP’s capability to fund long-lasting growth without depending heavily on borrowings.
4. Punjab
Even with a moderate deficit, the debt ratio is higher than that of many other states, and it has caused various imbalances in Punjab’s economy. Punjab’s fiscal story is well known: decades of generous power and farm subsidies have weighed on state finances. The 44.5 per cent debt-to-GDP ratio remains a concern even though its current deficit, at 3.8 per cent, is not the worst in India. Highly committed expenditure, especially on salaries, pensions, and interest payments, leaves limited space for development spending.
5. Himachal Pradesh
Himachal Pradesh, with a 40.5% debt ratio, faces similar challenges that many other hilly states have been facing in the last few years. There is high infrastructure, and the maintenance cost is also high. All this causes an imbalance and limits large-scale industrial growth. The major source of revenue for this state is tourism and hydro power. Welfare and development schemes remain a priority, though; the high debt burden could restrict this state’s ability to invest in infrastructure and future growth.
6. Mizoram
With a fiscal deficit of about 4.6%, Mizoram reported a 38.8% debt-to-GDP ratio. Its small population and hilly terrain make service delivery expensive, while economic diversification remains limited. Development programs in this state often rely on central grants and borrowing. If this state does not strengthen its fiscal position, rising debt will reduce its capacity to spend in the future and make it harder to remain fiscally stable.
7. Sikkim
Despite the small size of Sikkim, it carries a 38.2% debt burden, and the key reasons are huge spending on hydropower and eco-tourism, where the state government didn’t get strong returns. With the fiscal deficit of 5.8%, there is a chance that Sikkim can improve in the future through borrowing for sustainable growth and clear its taxes. Targeted management of hydropower revenues and careful prioritisation of new projects will be key to lowering the debt ratio.
8. West Bengal
West Bengal is one of India’s largest states, and its 38 per cent debt-to-GDP ratio reflects both historic borrowing and continued welfare spending. The state’s fiscal deficit is about 3.6 per cent, which is manageable, but interest payments consume a significant share of its budget. The major source of revenue for West Bengal in recent years has been IT services and logistics, where the state government is spending heavily to promote and improve the situation.
9. Meghalaya
With the heavy fiscal load, with a 37.6% debt to GDP ratio, there is 3% deficit, which makes Meghalaya the ninth state in our list. There is a huge dependence on central transfers and mining-related revenue. However, the government is also facing regulatory-related challenges, which make it difficult to work on debt-related issues. The possible solution, such as spending on tourism and clean energy, is a better medium for the current government to improve Meghalaya’s situation.
10. Bihar
On paper, Bihar might be holding the tenth position for having the highest debt; however, there are many issues in the state, like corruption, heavy infrastructure needs, low per capita income, and much more. Currently, the debt-to-GDP ratio in Bihar is 37% with a 3% fiscal deficit. The government is working on steady economic growth, which can lead to aid debt management.
Bottom Line
From Jammu and Kashmir to Bihar, all these states are struggling to manage debt. However, heavily spending on infrastructure has proven 1% more GDP growth than the overall spending. It means the growth is sustainable, steady, and requires time.