Financials used in player profile and peer benchmarking are as on 31st March 2025.
State Level Financing: Pathways, Potential & Challenges
States form the backbone of India’s development framework. As the second tier of governance, they are the ones who bring national priorities to life on the ground—whether it is the Make in India programme, large-scale infrastructure creation, or sectoral development that drives growth and jobs. Yet, despite being at the centre of implementation, states operate within tight fiscal boundaries. The FRBM Act limits how much they can expand their capital spending, even when more investment in infrastructure and industry is urgently needed. These constraints often slow down the pace at which states can build the roads, industrial parks, utilities, and logistics networks that businesses rely on.
To move past these limitations, states need to look beyond traditional budgetary support and tap into new sources of funding. Monetising idle assets and setting aside a dedicated, long-term infrastructure budget can play a significant role in expanding their investment capacity. At the same time, smooth execution of major projects depends heavily on the states’ ability to create a stable policy environment, provide targeted financial support where required, and offer state guarantees that help attract investors and lenders.
However, the role of the state in such financing structures must remain clearly defined. The responsibility for repayment should primarily rest with the issuing entity—whether through its own revenue-generating operations or from monetisation of the assets it develops. The state guarantee is meant to act only as a safety net, stepping in under exceptional and unforeseen circumstances. This balanced approach allows states to support infrastructure creation without taking on unsustainable fiscal risks, while still signalling confidence to the market and encouraging greater participation in development projects.
Quick perspectives from specialists