With revenue growth remaining uneven, states will need to improve the quality of expenditure rather than simply increase spending, particularly as their debt levels remain elevated. Twelve states reported revenue deficits in fiscal 2026, compared with 11 in fiscal 2025, reflecting slower growth in revenue receipts. State capex stood at 2.2 per cent of GSDP in fiscal 2026, below 2.3 per cent in fiscal 2025 and the budgeted 2.9 per cent. The share of fiscal deficits funded through market loans rose to 76 per cent in fiscal 2026 from around half in fiscal 2017. The report noted that the combination of higher revenue deficits, weaker-than-budgeted capex and increased borrowing points to growing expenditure commitments amid uneven revenue growth.