Capital expenditure by state governments likely grew 14% year-on-year in the first five months of the current financial year, reflecting a moderation in the monsoon period of July-August.
Their capex had grown 30% in the April-June period of the current fiscal.
A review of 19 states’ finances by FE showed that their capex in April-August rose to Rs 1.98 lakh crore, compared with Rs 1.75 lakh crore in the year-ago period. Their capex had contracted by 6% in April-August of FY25 due to election-related pauses.
Borrowing rises as tax revenue moderates
Borrowing and other liabilities of these states — Odisha, Uttar Pradesh, Maharashtra, West Bengal, Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Gujarat, Haryana, Karnataka, Kerala, Telangana, Assam, Punjab, Rajasthan, Chhattisgarh, Jharkhand, Himachal Pradesh and Uttarakhand — rose 24% on year in April-August as the tax revenue growth remained moderate.
These states reported an 8% increase in tax revenues in the first five months of FY26 at Rs 12.54 lakh crore, compared with a 12% growth recorded in the year-ago period.
Their borrowings rose to Rs 3.27 lakh crore during the period under review in FY26, against a 19% growth in the year-ago period. The revenue expenditure rose 9% to Rs 15.5 lakh crore. They had reported a 10% increase in revenue expenditure in April-August of FY25.
The Centre has budgeted to extend Rs 1.5 lakh crore in 50-year interest free capex loans to states in FY26.
The release of interest-free loans to states has accelerated to around Rs 52,000 crore so far in this fiscal. Total sanctions stood at around Rs 75,000 crore.
State capex leads public investment
Public capex — by the Centre, the states and CPSEs — is key to India’s gross fixed capital formation in recent years in the absence of strong private capex.
Central public sector enterprises (CPSEs) and other agencies, including railways and the National Highways Authority of India, have reported an aggregate capex growth of just 1.5% in the first five months of FY26.
The Centre’s capital expenditure has reached about 42% of its annual target by August and may reach around 50% by September.