Capital expenditure across seven major states showed a muted overall growth, but sharp divergences in April–January of FY26, compared with the year-ago period.
Regional Divergence
Combined capex for Assam, Chhattisgarh, Karnataka, Kerala, Madhya Pradesh, Rajasthan, and Uttar Pradesh rose marginally to about Rs 2.12 lakh crore during the period under review, from Rs 2.09 lakh crore in the year ago period—an increase of just 1.5%, indicating a clear slowdown after stronger expansion in earlier periods.
Performance, however, varies widely at the state level. Madhya Pradesh recorded the strongest growth of over 20%, reinforcing its aggressive infrastructure push. Assam and Kerala also posted robust increases of roughly 26% and 24%, respectively, reflecting continued emphasis on public works, connectivity, and social infrastructure. Karnataka’s capex grew moderately by about 6%, signalling stability rather than acceleration.
In contrast, three large states saw contractions. Rajasthan’s capex declined nearly 19%, Chhattisgarh’s fell about 13%, and Uttar Pradesh—despite remaining the largest spender in absolute terms—registered a drop of roughly 13%, which significantly pulled down the overall growth rate.
These declines may reflect fiscal consolidation, project completion cycles, or re-prioritisation towards revenue spending.
Fiscal Tightrope
The aggregate tax revenue growth of these states slowed sharply to about 6% in the first ten months of FY26, down from roughly 16% in the year-ago period, indicating a softer momentum after last year’s strong gains. In contrast, borrowings surged over 18% after declining around 4% in FY25, signalling increased reliance on debt financing. Revenue expenditure also eased, rising about 7% versus nearly 13% previously, though it remained elevated due to committed spending.
Overall, FY26 data so far reflect slower revenue expansion alongside higher borrowing needs, suggesting tightening fiscal space and greater pressure on states to balance growth support with prudence.
Public capital expenditure is widely considered one of the most growth-efficient forms of government spending because it creates productive assets — roads, railways, irrigation systems, power networks — that raise long-term economic capacity. Unlike revenue spending, which supports consumption, capex crowds in private investment by improving logistics, lowering business costs and boosting investor confidence. Empirical estimates in India suggest the multiplier of public capex can exceed 2.5 over time, meaning each rupee spent can generate more than double the output.