Capital expenditure by state governments likely grew 10% on-year in the first six months of the current financial year on a shrunken base, reflecting a moderate rate of growth compared to the Centre’s frontloading of capex to boost economic activity.
A review of 18 states’ finances by FE showed that their capex in April-September rose to Rs 2.5 lakh crore compared with Rs 2.26 lakh crore in the year-ago period. These states’ capex had contracted by 9% in April-September 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.
Borrowing and other liabilities of the 18 states — Uttar Pradesh, Maharashtra, West Bengal, Madhya Pradesh, Odisha, Andhra Pradesh, Tamil Nadu, Gujarat, Haryana, Karnataka, Kerala, Telangana, Assam, Punjab, Rajasthan, Chhattisgarh, Jharkhand and Uttarakhand—rose 15% on year in H1FY26 to Rs 4 lakh crore.
These states under review reported a 9% increase in their tax revenues in the first six months of FY26 at Rs 14.95 lakh crore compared with the 12% growth recorded in the year-ago period.
The revenue expenditure of these states rose 9% to Rs 18.6 lakh crore in H1FY26 compared with Rs 17.2 lakh crore in the year-ago period (up 9% on year).
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 accelerated in H1FY26.
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.
The Central Public Sector Enterprises (CPSEs) and other central agencies, notably the railways and the National Highways Authority of India (NHAI), demonstrated a significant uptick in capital expenditure during the first half of 2025-26, with September itself recording a remarkable 60% growth.