By Sri Varshith Kumar Reddy E

Indian states now hold nearly a third of the country’s general government debt. That single fact should colour how anyone reads a state budget this year, and Jammu and Kashmir’s 2026-27 accounts belong squarely inside that larger story. 

Its budget rests on a grant rather than a formula. That distinction determines whether its finances can survive a bad year, and on current evidence, they fail that test.

NITI Aayog’s Fiscal Health Index 2026 splits India’s states into four groups. Odisha tops the list with a score of 73.1. Goa and Jharkhand follow close behind, both pairing controlled deficits with own-tax revenues above 60 per cent of receipts. Punjab sits at the bottom with a score of just 12.4, joined in the “Aspirational” category by West Bengal, Kerala and Andhra Pradesh. 

The distance between the top and bottom performers grew wider over the past year, and that widening gap sets the backdrop for everything that follows.

The Reserve Bank of India’s review of state budgets sharpens the picture. 

Aggregate state debt fell to 28.1 per cent of GDP by March 2024, down from a pandemic peak of 31 per cent, but the central bank now projects a climb back to 29.2 per cent by the close of this fiscal year. 

Debt levels among individual states span from 17.8 per cent to 46.3 per cent of gross state domestic product, with Punjab projected to breach 45 per cent. 

The FRBM (Fiscal Responsibility and Budget Management) review committee once proposed a 20 per cent ceiling on state debt. Most large states abandoned that benchmark long ago, and nobody in Delhi seems eager to revive it.

The 16th Finance Commission tabled its report in Parliament on February 1, 2026, covering the award period from 2026-27 through 2030-31. It held the states’ vertical share at 41 per cent, unchanged from its predecessor, and capped state fiscal deficits at 3 per cent of gross state domestic product, enforceable under Article 293(3) of the Constitution. It directed states to end off-budget borrowing entirely, folding every outstanding liability onto their formal........

© Kashmir Observer