Among the most indebted states in the country, Punjab’s outstanding debt is projected to approach the ₹4.50 lakh-crore mark during the 2026-27 financial year.
The state government is estimated to borrow around ₹39,971 crore during the year, taking the debt liability to ₹4,47,754 crore by March 31, 2027, according to the ‘budget at a glance’ document tabled by finance minister Harpal Singh Cheema in the vidhan sabha on Sunday. This marks a 9% increase in debt over the current year’s revised estimates of ₹4,07,784 crore. The debt-to-gross state domestic product (GSDP) ratio will be 45.65%, which is among the highest in the country.
The spiralling debt, widely perceived to be the cause of the state’s fiscal woes, means a hefty outgo of ₹42,481 crore on debt servicing, including ₹13,726 crore on debt repayment and ₹28,755 crore on interest payments. Against the 2025-26 Budget Estimate (BE) of ₹24,995 crore, the state government has shelled out ₹27,679 crore in interest payments as per revised estimates for the year. The interest payments alone consumed 24% of the state’s revenue receipts, totalling ₹1,16,516 crore.
According to an evaluation commissioned by the 16th Finance Commission, the state’s debt management requires immediate attention as it had soared from ₹92,282 crore in 2012-13 to more than 4 lakh crore by March 31, 2026, pushing the debt-to-GSDP ratio from 23% to 46%. The high debt-to-GSDP ratio reflects fiscal stress.
On debt servicing, the study noted that interest payments currently consume about 20-25% of the state’s revenue receipts. “If the present trend continues, the state’s fiscal stress will worsen,” warned the study conducted by the Indian School of Business, projecting that the debt-to-GSDP ratio could rise to 62% by 2030-31, severely constraining development spending.
Earlier, the National Council of Applied Economic Research (NCAER), in a study titled ‘The State of the States: Federal Finance in India’, also stated that the debt ratio in states like Punjab, Rajasthan, Bihar, Himachal Pradesh and Kerala seemed set to rise further in the coming years. In their white papers, successive governments have also been blaming unproductive borrowings for the state’s lack of fiscal space, wherein the interest liability plus debt repayment is higher than its fiscal deficit. Another major concern has been that the bulk of the borrowed funds have been used by the governments for redemption of past debts, interest payments and day-to-day needs of the state.
