Capital expenditure by state governments during April–February points to a mixed but gradually improving investment cycle, with a handful of large states sustaining infrastructure spending even as others lag under fiscal pressure.
Aggregate capital outlay by 18 major states rose 9.5% year-on-year to Rs 4.76 lakh crore in the first eleven months of 2025-26, a marked recovery from the negligible 0.2% growth recorded in the corresponding period last year. The pick-up suggests a renewed push towards asset creation, though the pace remains uneven across regions.
Revenue trends, however, have been less supportive. The combined tax revenues of these states—West Bengal, Assam, Chhattisgarh, Karnataka, Kerala, Madhya Pradesh, Rajasthan, Uttar Pradesh, Uttarakhand, Tamil Nadu, Punjab, Odisha, Jharkhand, Gujarat, Haryana, Andhra Pradesh, Bihar and Himachal Pradesh—grew a modest 5% to Rs 23.8 lakh crore during April–February, sharply lower than the 13% expansion seen a year ago. The slower revenue growth has forced states to lean more heavily on borrowings.
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Consequently, aggregate borrowings and liabilities surged 39% to Rs 6.9 lakh crore, compared with a 10% increase in the year-ago period. At the same time, revenue expenditure growth remained broadly stable at around 10–11%, indicating that committed spending continues to absorb a significant share of state finances.
Borrowing Trap
A state-wise analysis highlights diverging trends. Uttar Pradesh retained its position as the largest capital spender at Rs 72,505 crore, despite an 8% year-on-year decline. Gujarat followed with Rs 62,662 crore, registering a robust 38% increase, while Madhya Pradesh (Rs 61,346 crore, up 21%) and Karnataka (Rs 38,662 crore, up 7%) also remained among the top investors.
Regional Divergence
In contrast, fiscally strained states adopted a more cautious stance. Punjab and West Bengal reported declines in capital spending of 6% and 14%, respectively, reflecting tighter fiscal headroom and revenue pressures.
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Economists note that public capex remains one of the most growth-efficient forms of spending, as it creates productive assets and crowds in private investment. With multipliers estimated above 2.5 over time, sustaining and improving the quality of such expenditure will be critical for long-term growth.
TOPICSRevenueThis article was first uploaded on March twenty-two, twenty twenty-six, at thirty-three minutes past six in the evening.