RBI released its annual study of state-level budgets entitled “State Finances: A Study of Budgets” which analyses the fiscal position of state governments. It is an annual publication that provides information, analysis and an assessment of the finances of state governments. The budget is also called Annual Financial Statement. Indian budget is presented every year by the Finance Minister in Parliament. Through this budget statement; the government displays its revenue and expenditure of the previous year and its budget estimates for the upcoming year.Sharp deterioration in state finances during the last decade - as evidenced by sharp increases in revenue, fiscal and primary deficits, increases in their indebtedness and contingent liabilities, and decline in capital and maintenance expenditures - has been a matter of serious concern to policy-makers. Low buoyancy of central transfers and spillover of central pay revisions have had the most adverse impact on state finances. However, the states' own fiscal performance has also seen sharp deterioration. On the transfer system, the scheme proposed by the ministry of finance attempts to link a portion of transfers to fiscal reforms. There are serious design issues in the scheme. It is not certain whether the scheme will be effective either. The paper details the areas of reform the states should focus on to impart efficiency and improve revenue productivity and prioritisation and compression of unproductive expenditures.