States’ capital expenditure likely rose by a solid 30% year-on-year in April–June of the current financial year, reflecting the broader public capex push to support economic activity amid global uncertainties.
States with a rise in borrowing
These states — Maharashtra, Telangana, Madhya Pradesh, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Gujarat, Haryana, Karnataka, Kerala, Odisha, Punjab, Rajasthan, Chhattisgarh, Jharkhand, and Himachal Pradesh — also stepped up borrowings in Q1 FY26, as revenue growth remained tepid.
A review of the finances of 16 states by FE showed that their capex in Q1 FY26 rose to Rs 95,823 crore, compared with Rs 73,476 crore in the year-ago quarter. These states had seen a 22% contraction in capex during Q1 FY25, largely due to election-related pauses.
The 16 states under review reported a 7% increase in tax revenues in April–June 2025, at `6.7 lakh crore, compared with 13% growth recorded in the year-ago period.
Their borrowings rose 58% year-on-year to Rs 1.36 lakh crore in Q1 FY26, against a 12% decline in the same quarter last year. Revenue expenditure by these states increased 10.5% in April–June 2025 to Rs 8 lakh crore, compared with a 10.1% rise in the corresponding period of the previous year.
Capex loans by the Centre
The Centre has budgeted Rs 1.5 lakh crore in 50-year interest-free capex loans to states in FY26 for capital projects.
Disbursement of these interest-free loans more than doubled year-on-year to around Rs 30,000 crore as of July 12, FY26. Total sanctions so far stand at around Rs 40,000 crore, against the full-year budget estimate of Rs 1.5 lakh crore for all states.
The Centre is expected to disburse around Rs 75,000 crore under this scheme by September to accelerate capex, sources said. Public capex—by the Centre, states, and CPSEs—has played a key role in supporting India’s gross fixed capital formation in recent years, amid muted private investment.
Central public sector enterprises (CPSEs) and other agencies, including the railways and the National Highways Authority of India (NHAI), reported aggregate capex growth of 15% in the first quarter of FY26. The Centre’s capital expenditure surged 54% in April–May 2025, albeit on a low base.