State debt and fiscal deficit, % of GDP (India)

The governments of Maharashtra, Gujarat, and Karnataka, followed by Odisha, Telangana, and Tamil Nadu, are in the strongest positions to meet spending commitments

State and national government spending in India will be strained in 2022 and 2023 as a result of the rise in global commodity prices and general economic slowdown. In this environment of tight government finances and rising debt, B2B and healthcare firms that depend on public spending for their business should use a subnational prioritization approach to maximize revenues. States that are generally likely to hit their spending targets are states with the lowest deficit and debt levels—such as Maharashtra, Gujarat, and Karnataka—and states such as Odisha, Tamil Nadu, and Telangana, which have manageable debt levels.

Specifically, companies that align themselves with the government’s priority sectors will stand to benefit the most. The Maharashtra government has outlined agriculture, healthcare, human resource development, transport, and industry as priority sectors; the Gujarat government will prioritize taming inflation ahead of the December 2022 election; the Karnataka government will prioritize the agriculture, industry, and healthcare sectors.


India’s national government deficit and debt levels rose sharply during the pandemic and are like to remain high over the next year. On average, states’ debt levels as a percent of GDP have also risen, from about 19% before the pandemic to close to 25% after the pandemic. However, wide state-level variations exist, with states such as Gujarat, Maharashtra, and Karnataka seeing controlled debt levels, while debt levels in Rajasthan, Punjab, Kerala, Uttar Pradesh, and West Bengal have risen substantially.

Our View

When taking a subnation prioritization approach to government projects in India, firms should take the following factors into account:

Debt and deficit dynamics: States with controlled debt (less than 30% of GDP) and low deficit levels (less than 3% of GDP) will be in a better place to meet their spending commitments.

Sources of revenue: States that have a larger portion of their revenues coming from their own tax collections, instead of from central government grants, such as Karnataka, Maharashtra, Tamil Nadu, and Haryana, will have more control over their projected revenue levels.

Timing of state elections: States such as Gujarat, Himachal Pradesh, and Karnataka have elections over the next 12 months, meaning they are likely to prioritize taming inflation over key sectors of spending in the short term.

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