Capital expenditure by states likely grew a modest 2% on-year in April-May FY27, a sharp slowdown from the 33% expansion recorded in the corresponding period of FY26.
Data compiled from 18 major states showed that aggregate capital expenditure stood at Rs 61,314 crore during the first two months of FY27, compared with Rs 60,094 crore a year ago, reflecting subdued growth.
These states- Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand and Telangana- showed a marked improvement in tax collections.
Tax collections rose 22% year-on-year to Rs 4.2 lakh crore in April-May FY27, accelerating from a marginal 1.2% increase in the same period last year. Revenue expenditure also remained firm, increasing 5.5% to Rs 5.18 lakh crore.
Revenue Buffers
The stronger revenue performance helped states reduce their dependence on borrowings and other liabilities. Aggregate borrowings and liabilities of the 18 states fell 28.4% year-on-year to Rs 1.14 lakh crore in April-May FY27, reversing a 24.4% rise recorded a year earlier.
Regional Divide
Among major states, Andhra Pradesh posted one of the sharpest increases in capital spending, with capex rising to Rs 5,540 crore from Rs 2,242 crore a year ago. Kerala’s capital expenditure more than doubled to Rs 5,708 crore, while Rajasthan’s increased to Rs 5,016 crore from Rs 3,759 crore. Assam also recorded strong growth, with capex climbing to Rs 4,628 crore.
In contrast, several states witnessed a decline in capital outlay. Madhya Pradesh’s capex fell to Rs 7,595 crore from Rs 10,154 crore, Gujarat’s declined to Rs 7,484 crore from Rs 8,717 crore, and Uttar Pradesh’s dropped to Rs 5,293 crore from Rs 8,891 crore. Odisha and Tamil Nadu also reported lower capital expenditure compared with the previous year.
The data suggest that while states have strengthened their revenue position and curbed borrowing, capital spending momentum has moderated significantly in the initial months of FY27, reflecting caution.
The Centre is nudging state-run enterprises and states to step up capex to support economic activity amid global uncertainties. The Centre has budgeted to provide Rs 2 lakh crore in capex support to states in FY27.