Mining dependence, rising borrowings strain Chhattisgarh finances: NCAER

An NCAER study flags Chhattisgarh's reliance on volatile mining revenue, rising subsidies and widening deficits, warning that its debt-to-GSDP ratio could climb further.

Chhattisgarh's dependence on mining revenues and its growing reliance on borrowings are constraining the state's fiscal sustainability and its capacity to invest for the future, according to a new working paper released by the National Council of Applied Economic Research (NCAER).

 

The working paper, titled "Assessing the Fiscal Dynamics of Chhattisgarh State: A Comparative Study with Jharkhand and Odisha", finds that more than 70 per cent of the state's non-tax revenue comes from mining — a base the authors call a source of “vulnerability” as mining revenues are highly sensitive to fluctuations in mineral prices. Compounding the problem, the mining and quarrying sector's share in the state's economy has been shrinking even as the state leans on it more heavily.

  

The paper chose Odisha and Jharkhand as benchmarks because all three are neighbouring, mineral-rich states with similar rural, agriculture-heavy economies.

 

The study noted that Chhattisgarh’s fiscal deficit ballooned to 5.4 per cent of gross state domestic product (GSDP) in 2024-25 — well above the all-state average of 3.5 per cent, and far higher than Jharkhand's 2.2 per cent and Odisha's 3.3 per cent. The deficit had averaged just 3.2 per cent over the previous decade.

 

“Despite Chhattisgarh’s higher revenue collection, its total expenditure remains significantly greater, limiting its fiscal space. The state is forced to borrow not only for investments but also to cover routine expenses," the paper said. It highlighted that Chhattisgarh does many things well: the state leads its peers in own tax revenue, at 8.2 per cent of GSDP, and channels a large share of spending into health, education, and social services. “Its (Chhattisgarh’s) fiscal position remains vulnerable due to high subsidies, rising committed expenditure, widening deficits, and large contingent liabilities”, while Odisha and Jharkhand have maintained stronger discipline and revenue surpluses, the paper said. Further, subsidies now absorb nearly 10.9 per cent of Chhattisgarh's total expenditure — more than triple Odisha's 3.4 per cent and above Jharkhand's 7.6 per cent — driven largely by food and electricity support.

 

Committed spending on salaries, pensions and interest has also crept up, from 7.3 per cent of GSDP in 2015-16 to 8.5 per cent in 2024-25. The squeeze is clearest in capital spending — funds for roads, buildings and other long-term assets — which has fallen to 4.1 per cent of GSDP, against Odisha's 6.4 per cent, an outcome that, the authors said, "poses concerns for the state's long-term economic growth prospects”.

 

According to the study's debt-sustainability projections, under the baseline scenario, the state's debt-to-GSDP ratio is expected to rise by at least 5 percentage points by 2029-30. Modelling scenarios that assume only faster growth, only a smaller primary deficit or only reduced contingent liabilities offer little relief. A modest fall in the ratio emerges only when higher growth and a lower primary deficit are achieved together, a demanding combination that leaves little margin for slippage.

 

The contrast with its neighbours sharpens the warning. Jharkhand faces a similar trajectory, with its debt ratio expected to climb across most scenarios over 2025-26 to 2029-30. Odisha, however, is projected to see its debt-to-GSDP ratio fall under every scenario modelled, including one in which it absorbs all of its outstanding contingent liabilities. Despite the warnings, Chhattisgarh still ranks sixth among 18 major states on NITI Aayog's Fiscal Health Index, placing it in the "front runner" category. However, it sits near the bottom, 17th, on the fiscal prudence aspect of the index.