New Delhi, Sept. 17 -- When fiscal deficit numbers make headlines in India, the focus invariably falls on the Union government. Yet, this myopic view overlooks a crucial component of the nation's financial health: the states, which collectively account for a substantial portion of the overall fiscal gap.

Mint takes a closer look at why states' debt dynamics are as critical as the Centre's.

The true picture of India's debt is distorted by a persistent focus on the Central government alone. States' annual borrowing, typically at 3-4% of GDP, compares with the Centre's 4.8% in FY25. These figures are often understated by off-budget borrowings, which obscure the full extent of their liabilities.

The debt-to-GSDP ratios in some large states...