New Delhi, Jan. 24 -- States' combined fiscal deficit rose to 3.3 per cent of GDP in 2024-25, crossing the 3 per cent mark after three years, according to Reserve Bank of India (RBI)'s report 'State Finances: A Study of Budgets of 2025-26'.

For 2025-26, states have again budgeted a fiscal deficit of 3.3 per cent of GDP.

The RBI said the higher deficit mainly reflects 50-year interest-free loans given by the Centre for capital investment, over and above normal borrowing limits.

Capital Spending Maintained

States continued to focus on capital expenditure, which stood at 2.7 per cent of GDP in 2023-24 and 2024-25, and is budgeted to rise to 3.2 per cent of GDP in 2025-26.

Debt Levels and Risks

States' combined debt declined to 28.1 per...