"High committed expenditure has made State budgets rigid and crowded out capital investment." Examine with reference to recent State-level fiscal data, and suggest reforms.

Committed expenditure means spending on salaries, pensions and interest. It is the first charge on a State's revenue. When it takes up most receipts, budgets lose flexibility and capital spending becomes the easiest item to cut. Recent data largely bears out the statement, though measurement gaps blur the picture.

Evidence of budget rigidity

• All States: in 2023-24, about 53% of revenue receipts went on salaries, interest and pensions, plus 9% on subsidies [1].
• Tamil Nadu: committed expenditure is estimated at 61% of revenue receipts in 2026-27 (salaries 26%, interest 22%, pensions 13%). The States' average in 2025-26 was about 50% [2].
• Persistence: CAG reports that committed expenditure rose 8.15% in 2024-25 to about 54% of TN's revenue expenditure. It warns this leaves "lesser flexibility for the development sector" [3]. CAG flagged a similar problem in 2011, when it put the figure at nearly 71% of receipts, including subsidies [4].

Crowding out of capital investment

• Thin capex: total State capital expenditure was only about 2.7% of GSDP in 2023-24 [1].
• Shrinking fiscal space: the 16th Finance Commission noted that higher committed spending leaves less room for priorities such as capital expenditure [2].
• Growth penalty: RBI links a higher share of capital outlay to faster growth in per-capita GSDP [5].
• Caveats:
• Definitions differ. RBI counts loans and advances within capex [5], while CAG once counted subsidies as committed spending [4]. Cross-State comparison is therefore unreliable.
• Revenue collections falling short of Budget Estimates also push the ratio up [3].

Reforms

• Standardise measurement: publish common definitions of committed spending and capex, and report capex both with and without loans.
• Institutionalise spending reviews within the annual budget and a medium-term framework, backed by performance information [6].
• Rationalise subsidies and cash transfers while protecting capital spending [1].
• Debt management: borrow less and at lower cost over time, since interest is fixed by past borrowing.
• Realistic revenue estimates and stronger tax mobilisation, so the ratio is not inflated by shortfalls [3].
• Independent audit: CAG can check whether the new definitions are applied honestly [3].

Overall, committed spending has made State budgets rigid and kept capex thin. Part of the problem, however, comes from inconsistent measurement and over-optimistic revenue estimates. Measuring spending consistently, building spending reviews into the budget cycle and improving debt management can free fiscal space. This would let States protect welfare while investing in growth, in the spirit of cooperative fiscal federalism.