Questioning the propaganda about Uttar Pradesh’s “revenue surplus” in 10 charts

Uttar Pradesh Chief Minister Yogi Adityanath expressed his views strongly. State’s economic growth at his government’s Industry Leaders Roadshow in Bengaluru On June 24, it highlighted how the state has become “revenue surplus over the last six years” while shedding its image of being a “sick” state – an imprecise term used to refer to a group of North Indian states that have lagged behind in developmental indicators.

Mr Adityanath rarely fails to mention this “achievement” of revenue surplus in his speeches about the economic transformation that Uttar Pradesh is witnessing after taking charge as Chief Minister in 2017.

Comptroller and Auditor General of India (CAG). Annual State Finance Report for the year 2024-25Released on June 16, it was added to the promotion. According to the report, UP was not only among 13 of the 28 states that reported revenue surplus in 2024-25, but also had the highest surplus of ₹59,327 crore, which was almost half of the total revenue surplus of these 13 states at ₹1.27 lakh crore.

Interestingly, almost none of the remaining 12 states, as shown below, are among those known to perform better on most developmental indicators.

Analysis of the state finance reports of the CAG and the Reserve Bank of India (RBI) has revealed that the “revenue surplus” position of at least some of these states is not the result of sharp growth in revenues or commendable fiscal discipline, but primarily an inability to spend the budget amount despite the availability of funds.

UP, the largest state and the third largest economy of the country, with the largest budget, revenue surplus and highest allocation from the Centre, is exactly the example of this problem.

1. Utopia on paper?

The Fiscal Responsibility and Budget Management Act and fiscal responsibility legislation of states emphasize that borrowing should ideally be taken for capital expenditure and not for revenue expenditure.

Therefore, while fiscal deficit within prescribed limits is not considered bad, revenue deficit is seen as a symptom of poor fiscal discipline.

By these standards, UP stands out as an ideal case, reporting high revenue surplus and manageable fiscal deficit. The chart below shows the revenue and fiscal position in terms of Gross State Domestic Product (GSDP) of the country’s top 10 economies.

2. Problem of low expenditure

Although UP’s revenue and fiscal indicators paint a rosy picture, its expenditure pattern shows that the revenue surplus is mainly due to huge deviations from its total budget expenditure, including capital expenditure.

The chart below shows the percentage of under-spending by 10 states compared to their budgeted expenditure.

Telangana’s expenditure was less than that of UP. However, its problems – and those of Andhra Pradesh, which is now more dependent on central transfers – are a result of their bifurcation in 2014. Moreover, unlike UP, Telangana recorded a revenue deficit of ₹9,420 crore.

3. The problem is persistent

An analysis of data over the last 10 years shows that the pattern of underspending in UP – which is indicative of poor budgeting as well as inability to spend efficiently – has persisted. The chart below shows the deviation from budgetary expenditure of 10 states. Since 2019-20, UP has consistently underspent its budgetary expenditure by at least 15%.

4. Comparison with Maharashtra

UP’s budgetary receipts and expenditure are the highest in the country, with Maharashtra being the only state with comparable figures. A comparison of the budget versus actual receipts and expenditure of these two states shows how UP’s revenue surplus is a likely result of its low expenditure.

Revenue surplus or deficit is the difference between total receipts and total revenue expenditure.

The chart below shows how revenue receipts for UP declined by 16%, yet, it managed to report a revenue surplus, albeit a figure slightly smaller than its budget estimate, as its revenue expenditure also declined by a massive 15.4%.

In contrast, Maharashtra budgeted for a smaller revenue deficit and stuck close to its plan in terms of revenue receipts and expenditure.

5. What if UP’s spending pattern was similar to others?

The chart below shows what UP’s revenue surplus or deficit would have been if its revenue expenditure had been in line with the budget, or at the deviation rate of its peers – Maharashtra (-1.47%) in terms of budget size, and Madhya Pradesh (-4.86%), in terms of comparable developmental indicators and dependence on central transfers – or at the average rate of deviation of all states (-6.09%).

6. Variance in capital expenditure worsens

While one could argue that the decline in UP’s revenue expenditure was perhaps due to prudent cuts in expenditure in anticipation of a revenue shortfall, its pattern on capital expenditure shows why underspending is a systemic issue in the state.

The chart shows how UP’s deviation from its plan was far worse in capital expenditure than in revenue expenditure.

In 2024–25, UP’s budgeted capital outlay was ₹1.55 lakh crore, but its actual expenditure was only ₹1.13 lakh crore – a decrease of about ₹41,800 crore (-27%). In fact, the deviation in capital expenditure was -23.6%, even when compared with the revised estimate of capital outlay that the state could have achieved in the middle of the financial year, when its forecast was better.

7. Lowest developmental expenditure

Revenue expenditure is generally understood to include the operational costs of running a government, although it also includes significant expenditure on improving developmental indicators.

The RBI report refers to this component of revenue expenditure as “developmental expenditure” under two broad categories of social and economic services of the government. The analysis revealed that UP’s per capita development expenditure in revenue account was the lowest among the top 10 economies.

8. Heavy dependence on central transfers

The fact that UP has been able to report a revenue surplus every year has been possible due to central transfers, which have consistently been more than 50% of the state’s total revenue – the highest for any major state apart from Bihar.

The chart below shows that the share of central transfers in total revenue has declined for some states among the 10 largest economies, while for UP it has remained largely the same.

9. Indian Government’s share remained unspent

Importantly, UP’s expenditure pattern showed that despite receiving the bulk of funds from the central government, it was not able to spend the money as per the budget.

The chart below shows the share of the Government of India in the budgetary outlay for centrally sponsored schemes for four states and the deviation in the actual utilization of these funds. UP’s deviation was -38.4%, meaning it fell short of spending even two-thirds of the Government of India’s budgetary share.

10. Strange financial situation of UP

The first chart shows how Uttar Pradesh appears to be an exceptional example of prudent fiscal management with its revenue surplus and fiscal deficit.

The chart below shows that the pattern discussed above has indeed put UP in an awkward position among the 10 largest economies – perhaps not in an ideal way, but in a worrying way – because the money it did not spend (compared to its budget in both the revenue and capital accounts) was almost twice the size of its fiscal deficit.

In other words, it planned to borrow for the year according to its budget, but spent far less than it actually borrowed.

To present an analogy, suppose a household’s annual revenue is ₹10 lakh, out of which its planned recurring expenditure is ₹9.5 lakh. There is a buffer of ₹50,000 (equivalent to revenue surplus). It plans to carry out some long-pending repair work in its house at a cost of ₹2.5 lakh.

Hence the total estimated expenditure for the year is ₹12 lakh and the family plans to borrow ₹2 lakh (same as fiscal deficit) to meet the difference between its revenue and expenditure.

Now, if the revenue unexpectedly falls to ₹9 lakh, the family cuts its children’s educational expenditure to bring down its recurring expenditure to ₹8.5 lakh, and leaves the repair works incomplete by spending only ₹1.5 lakh, then it would have spent a total of ₹10 lakh and hence would have to borrow only ₹1 lakh.

The family borrowed less, but spent ₹2 lakh less in its budget, impacting children’s education and repair work. The question is whether this is a desirable outcome for a family aspiring for upward social mobility.. UP could do itself a favor by introspecting on a question that is perhaps not all that different.

(The analysis used only data up to 2024-25 as this is the latest year for which actual data is available.)