States’ aggregate capital expenditure (capex) likely grew at half the pace in April–July of the current financial year compared with the year-ago period, partly due to a monsoon-induced slowdown.
Going by the finances of 20 large states reviewed by FE, their capex during April-July 2026-27 rose 10.7% year-on-year to Rs 1.79 lakh crore, compared with 21.8% growth in the same period of 2025-26. The moderation could also partly stem from only four tranches of tax devolution being shared with the states in April-July 2027, compared with five in the year-ago period.
However, stronger tax revenue growth and lower borrowings, coupled with likely front-loading of tax devolution in the coming months, could give states the fiscal space to accelerate capex in the remaining months of FY27.
The states analysed are: Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka, Bihar, Rajasthan, Odisha, West Bengal, Punjab, Kerala, Madhya Pradesh, Telangana, Andhra Pradesh, Assam, Haryana, Gujarat, Himachal Pradesh, Uttarakhand, Jharkhand and Chhattisgarh.
State Highlights
Maharashtra recorded the sharpest increase, with capex more than tripling to Rs 18,472 crore from Rs 6,000 crore a year earlier. Punjab also saw capex rise more than threefold to Rs 4,299 crore, albeit on a lower base. Kerala recorded a 69.1% rise, while capex increased 58% in Chhattisgarh and 54.9% in Telangana.
Among the larger spending states, Gujarat remained the biggest spender, with capex of Rs 23,612 crore, up 10.9%. Madhya Pradesh, despite spending Rs 18,102 crore, saw capex decline 21.2%, while Uttar Pradesh’s capex fell 3.8% to Rs 18,049 crore. West Bengal recorded the steepest decline, with capex falling 52.9% to Rs 1,670 crore, reflecting its fiscal constraints. Bihar’s capex declined 40.5%, while Jharkhand and Haryana registered falls of 31.5% and 25.1%, respectively.
Fiscal Headroom
Revenue expenditure across the 20 states increased only 4% in April-July 2026-27, compared with 11% growth a year earlier. At the same time, tax revenues grew 12%, accelerating sharply from 3% growth in the corresponding period of FY26.
These states’ borrowings and liabilities declined 15% on-year in April-July FY27, reversing a 60% increase in the year-earlier period, reflecting lower reliance on borrowings as tax collections have strengthened.
The Centre is nudging states and public sector enterprises to keep the momentum in capex to boost economic activity even as private capex has started to expand. The centre’s capital expenditure grew by a robust 30% on year in April-July of the current financial year.