Capital expenditure by state governments likely grew 10% on-year in the first seven months of the current financial year, but revenue expenditure growth was a modest 4% during the period.
Capital spending leads the way
A review of 18 states’ finances by FE showed that their capex in April-October stood at Rs 3 lakh crore compared with Rs 2.7 lakh crore in the year-ago period. These states’ capex had contracted by 7% in April-October a year ago, due to election-related pauses.
The Centre’s capex rose 40% on year in H1FY26 compared with a 15% on year contraction in H1FY25 due to election-related pauses.
Fiscal prudence reflected in moderate revenue expenditure
Borrowing and other liabilities of the 18 states — West Bengal, Uttar Pradesh, Maharashtra, Madhya Pradesh, Odisha, Andhra Pradesh, Tamil Nadu, Gujarat, Haryana, Karnataka, Kerala, Telangana, Assam, Punjab, Chhattisgarh, Jharkhand, Uttarakhand and Himachal Pradesh—fell 8% on year in April-October FY26 to Rs 3.8 lakh crore.
Lower borrowing got reflected in revenue expenditure, which grew by a modest 4% on year to Rs 20.6 lakh crore in the first seven months of FY26 compared with 14% growth seen in the previous year. Revenue spending is likely to accelerate in the remainder of FY26.
These states under review reported a 10% increase in their tax revenues in the first seven months of FY26 at Rs 17.4 lakh crore compared with the 16% growth recorded in the year-ago period.
The Centre has budgeted to extend Rs 1.5 lakh crore in 50-year interest-free capex loans to states in FY26 for their capital projects. The release of interest-free loans to states has kept the states’ capex stabilised so far in FY26.
Public capex—by centre, states and CPSEs—is key to India’s gross fixed capital formation in recent years in the absence of strong private capex.
Capital expenditure by Central Public Sector Enterprises (CPSEs) and key central agencies, including Indian Railways and the National Highways Authority of India (NHAI), grew 13% year-on-year in the April–October period of 2025–26
