State government finances under stress due to social sector spending

State governments primarily finance social and economic sectors like health, education, agriculture, and irrigation, with expenditure frequently overshooting tax receipts and resulting in market borrowings.

While the Union government holds primary tax-raising powers, State governments bear a larger share of overall government spending, often leading to a mismatch with development aspirations.

According to Reserve Bank of India data for 2020-23, per capita social expenditure was higher in Kerala and Tamil Nadu by 30% and 20% above the national average, but lower in Bihar and Uttar Pradesh.