UP, Gujarat, Odisha continue fiscal consolidation despite populist schemes

Uttar Pradesh, Gujarat, and Odisha budgets maintain revenue surpluses despite welfare schemes, while Rajasthan and West Bengal face high debt, fiscal deficits, and low capital outlay

Uttar Pradesh is the largest as well as the poorest economy in terms of per capita income among the five major states that recently presented their Budgets for 2025-26. Yet, it continues to maintain a revenue surplus position despite announcing 92,000 new jobs, raising the salaries of 0.9 million outsourced workers, and providing free scooters to bright female students. 

  It is not the only state to do so. Gujarat and Odisha have also projected a continuation of their revenue surplus positions. 

  Gujarat, however, is more prosperous, with its per capita income in 2022-23 over three times that of Uttar Pradesh, despite having an economy only slightly smaller than the latter. Odisha also had a per capita income 1.7 times that of Uttar Pradesh in the same year, though its economy was almost one-third the size of the Yogi Adityanath-ruled state.

 

  In a nutshell, the economic environments of the three states are quite different, but they share similarities in terms of maintaining a revenue surplus.

  Uttar Pradesh, and to a lesser extent Odisha, rely heavily on the Centre’s devolution and transfers for their revenue receipts. This is not the case for Gujarat.

  This could be gauged from the fact that in 2025-26 (Budget Estimates), Odisha and Uttar Pradesh are expected to generate only 28 per cent and 44 per cent, respectively, of their revenue receipts from their own tax revenues. In contrast, Gujarat has generated over 60 per cent of its revenue receipts from its own tax sources over the past four years, including the estimates for the current financial year (Revised Estimates) and 2025-26 (Budget Estimates). 

 

  Despite maintaining a revenue surplus position, Uttar Pradesh has had sovereign debt close to 30 per cent of its gross state domestic product (GSDP) since the Covid-hit year of 2020-21. Odisha, on the other hand, is in a more comfortable position despite having a capital outlay-GSDP ratio similar to that of Uttar Pradesh. These two states have the highest capital outlay in proportion to the size of their economies among the five states. 

Gujarat also has a manageable debt position, but its revenue position is much stronger than that of Uttar Pradesh and Odisha. However, its capital outlay is lower than that of these two states in proportion to its GSDP. 

  The situation is worrisome for Rajasthan and West Bengal. Rajasthan closely follows the highly indebted West Bengal in this regard, with both states running revenue deficits. Their fiscal deficit is now projected to exceed the permissible limit of 3-3.5 per cent of GSDP. Their capital outlay is the lowest both as a proportion of total expenditure and relative to their respective GSDPs among the five states.