- State prioritizes tax efficiency, managing manageable interest burden.
As Assam prepares for its upcoming budget, public debate has once again narrowed to a familiar question: Is the state’s rising debt becoming a threat to its economic future? Political narratives often reduce fiscal performance to a single number, the size of public borrowing, portraying every increase in debt as evidence of financial mismanagement. Yet such a view overlooks the fundamental principles of public finance.
Evaluating a government’s fiscal health solely by looking at its debt is akin to judging a corporation only by its liabilities while ignoring its assets, investments, revenues, and future earning potential. Debt, in itself, is neither good nor bad. The critical questions are why governments borrow, how efficiently borrowed funds are deployed, and whether those investments generate sufficient economic returns to sustain future growth.
Viewed through this broader lens, Assam’s fiscal trajectory presents a far more balanced and encouraging picture than political discourse often suggests. Rather than borrowing to finance routine administration, the state is increasingly using debt to build the physical and economic infrastructure necessary for long-term development. This distinction is crucial in assessing whether the state’s fiscal strategy is sustainable.
The Growth Narrative versus the Debt Trajectory
The most meaningful indicator of debt sustainability is not the absolute amount of outstanding liabilities but the Debt-to-Gross State Domestic Product (Debt-to-GSDP) ratio, which measures debt relative to the size of the economy.
Assam’s total liabilities increased from ₹87,408 crore in 2020-21 to approximately ₹1.73 lakh crore in 2024-25. Taken in isolation, this near doubling appears alarming. However, over the same period, the state’s economy expanded rapidly. Nominal GSDP grew from ₹3.40 lakh crore to nearly ₹6.44 lakh crore, and medium-term projections anticipate further expansion to approximately ₹7.42 lakh crore in 2025-26 and ₹8.68 lakh crore by 2026-27.
Because economic growth kept pace with borrowing, the Debt-to-GSDP ratio moved only marginally from 25.7 per cent to 26.8 per cent, remaining comfortably below the 32 per cent ceiling prescribed under the Assam Fiscal Responsibility and Budget Management (FRBM) Act.
This is an important distinction. A rapidly expanding economy naturally possesses greater capacity to service debt than a stagnant one. As income rises, governments gain larger revenue bases, making higher borrowing levels fiscally manageable. Assam’s debt, therefore, reflects an expanding development agenda rather than deteriorating fiscal health.
Similarly, the state’s fiscal deficit deserves careful interpretation. Like most Indian states, Assam expanded borrowing during the pandemic after a temporary relaxation of fiscal limits. The fiscal deficit rose to 7.1 per cent of GSDP in 2021-22 before declining to 6.2 per cent in 2022-23 and 3.7 per cent in 2023-24. Medium-term projections indicate further moderation to 3.3 per cent by 2026-27, signalling a gradual return to fiscal discipline without sacrificing development expenditure.
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Looking Beyond Debt: The Quality of Expenditure
The real measure of responsible borrowing lies not in the volume of debt but in where the money is invested.
Public expenditure broadly falls into two categories:
- Revenue expenditure, which finances salaries, pensions, subsidies, and routine administrative expenses.
- Capital expenditure creates long-term productive assets such as highways, bridges, irrigation systems, hospitals, educational institutions, industrial infrastructure, and digital connectivity.
Borrowing to fund recurring expenditure merely postpones today’s expenses into the future. Borrowing to finance capital assets, however, expands productive capacity, attracts private investment, improves logistics, creates employment, and eventually generates additional tax revenue.
Assam’s recent fiscal strategy clearly reflects this second approach.
Capital outlay increased from 3.65 per cent of GSDP in 2023-24 to 4.11 per cent in 2024-25, with medium-term projections maintaining a relatively high level at 3.96 per cent in 2025-26 and 3.72 per cent by 2026-27.
At the same time, the state’s revenue deficit, which indicates borrowing for current consumption, is steadily shrinking. It accounted for 0.46 per cent of GSDP in 2023-24 and is projected to decline to almost zero by 2026-27.
Assam’s Key Fiscal Indicators
Assam’s medium-term fiscal projections indicate a gradual strengthening of its public finances. Capital outlay increased from 3.65 per cent of GSDP in 2023-24 to 4.11 per cent in 2024-25, reflecting the government’s continued emphasis on infrastructure-led growth. Although capital expenditure is projected to moderate slightly to 3.72 per cent by 2026-27, it is expected to remain significantly above pre-pandemic levels, underscoring a sustained commitment to asset creation.
The fiscal deficit has stabilised at 3.7 per cent of GSDP in both 2023-24 and 2024-25, with the Medium-Term Fiscal Plan projecting a gradual reduction to 3.3 per cent by 2026-27, signalling a return to fiscal consolidation while maintaining development spending.
Meanwhile, the revenue deficit, which stood at 0.46 per cent of GSDP in 2023-24, is on a declining trajectory and is expected to approach zero by 2026-27. This suggests that the state is progressively reducing its reliance on borrowing to finance day-to-day expenditure and increasingly directing borrowed resources towards productive capital investment.
Collectively, these indicators point to a fiscal strategy that prioritises long-term economic growth while maintaining adherence to prudent fiscal management and sustainability objectives.
Revenue Mobilisation: The Next Frontier
While Assam’s debt profile appears manageable, sustaining this trajectory requires strengthening its own revenue base.
Revenue mobilisation ultimately determines whether today’s investments remain affordable tomorrow.
The state’s total tax revenue increased significantly from ₹17,134 crore in 2020-21 to over ₹30,000 crore in 2024-25. However, this increase has not entirely matched the pace of economic expansion.
Personal tax revenue as a share of GSDP declined from 5.04 per cent to 4.67 per cent, with projections suggesting a further decline to approximately 4.3 per cent by 2026-27.
This indicates that while the economy is expanding rapidly, tax collections are growing more slowly.
If Assam’s GSDP continues to grow at around 17 per cent annually, but state tax collections increase by only 10–12 per cent, the gap between economic activity and fiscal capacity could widen. Over time, this may increase dependence on central transfers or additional borrowing.
The upcoming budget should therefore prioritise improving tax efficiency rather than increasing tax rates.
Policy priorities include:
- Modernising GST compliance through digital monitoring and analytics.
- Broadening the property tax base in expanding urban centres.
- Strengthening land revenue administration.
- Improving non-tax revenue collection across government departments.
- Reducing leakages through better data integration and enforcement.
A stronger internal revenue system provides a more sustainable source of fiscal space than repeated borrowing.
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Interest Burden Remains Manageable
Another critical measure of fiscal sustainability is the cost of servicing debt.
Interest payments nearly doubled from ₹5,199 crore in 2020-21 to ₹9,468 crore in 2024-25. Yet despite this increase, the ratio of interest payments to GSDP remained remarkably stable, falling slightly from 1.53 per cent to 1.47 per cent.
More importantly, debt servicing continues to absorb less than 10 per cent of the state’s revenue receipts, indicating that interest obligations are not crowding out developmental expenditure.
This provides Assam with valuable fiscal flexibility as long as borrowing continues to finance productive investments.
Managing Contingent Liabilities
Fiscal sustainability also requires careful monitoring of risks that do not immediately appear in budget documents.
One such area is contingent liabilities, particularly government guarantees extended to public sector enterprises and infrastructure agencies.
Currently, outstanding guarantees amount to only about 0.4 per cent of GSDP, suggesting limited immediate risk. Nevertheless, historical experience across several Indian states demonstrates that financially distressed public enterprises can quickly convert these implicit guarantees into explicit government liabilities.
Continuous monitoring, transparent disclosure, and prudent risk management are therefore essential components of responsible fiscal governance.
Transparency and Fiscal Discipline
As borrowing becomes increasingly central to financing infrastructure, public confidence depends on transparency.
Medium-term fiscal planning should clearly communicate projected debt levels, fiscal deficits, interest obligations, contingent liabilities, and associated risks. Such transparency enhances policy credibility, reassures investors, and enables informed public debate.
Fiscal discipline should not be measured solely by reducing deficits but by improving the efficiency of public expenditure. Better project implementation, timely completion of infrastructure, stronger procurement systems, and rigorous monitoring can maximise the developmental impact of every borrowed rupee.
The Road Ahead
The evidence suggests that Assam is not facing a debt crisis.
Its debt remains within statutory limits, fiscal deficits are gradually declining, interest burdens remain manageable, and a growing share of borrowing is financing productive capital formation rather than routine expenditure. These are signs of a fiscally responsible state undergoing structural transformation rather than one drifting towards financial distress.
The challenge ahead is to ensure that today’s infrastructure investments translate into tomorrow’s higher incomes and stronger revenues. Fiscal consolidation should continue, but not at the expense of roads, irrigation, healthcare, education, digital infrastructure, and human capital, all of which are essential for sustaining long-term growth.
Ultimately, the conversation surrounding Assam’s finances must evolve beyond simplistic debates over the absolute size of debt. The more meaningful question is whether public borrowing is creating durable assets, expanding productive capacity, strengthening revenue generation, and improving the quality of life for citizens.
If the upcoming budget successfully balances continued capital investment with stronger revenue mobilisation, prudent debt management, and greater fiscal transparency, Assam will not merely remain within its fiscal limits—it will lay the foundations for lasting economic resilience. In that sense, the true measure of fiscal health is not how much the state borrows, but how effectively those borrowed resources are transformed into sustained and inclusive economic growth.
The writer is a technocrat, political analyst, and author.
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