States Capex Reaches Decade High of 3 Percent of GDP, Reports India Ratings
Aggregate capital expenditure by Indian states reached nearly a decade-high level of approximately 3.0% of gross domestic product in FY25 and FY26, according to an assessment by India Ratings reported in Chennai. The surge has been largely driven by funding under the central government's Scheme for Special Assistance to States for Capital Investment.
The improvement reflects a rebound in capital expenditure following the normalisation of economic activity after the COVID-19 pandemic. According to revised estimates, aggregate state capex rose to 3.0% of GDP in FY25, with India Ratings expecting the ratio to remain around 3% in FY26. This represents the highest spending level recorded by states since FY17, when the ratio peaked at 3.3% due to state governments absorbing the debt of power distribution companies under the Ujwal DISCOM Assurance Yojana scheme.
A primary catalyst for the recent expansion has been state-level spending supported by SASCI, an initiative through which the Union government supplements states' budgetary resources for capital asset creation. To sustain this momentum, the central government allocated Rs 1.85 lakh crore to state governments under the SASCI programme in the FY27 Union budget.
"Capital assets creation by Indian states in FY27 is expected to maintain the pace observed in the post-pandemic period," said Anuradha Basumatari, Director of Public Finance at India Ratings.
Despite the nationwide improvement, performance varied substantially across regions. A group of states including Bihar, Jharkhand, Madhya Pradesh, Assam, Uttar Pradesh, Goa, and Odisha led the growth, with each achieving capex ratios of 4% or higher between FY22 and FY25, comfortably exceeding the national average of 2.6%. Conversely, several larger states, including Tamil Nadu, Maharashtra, Rajasthan, Andhra Pradesh, West Bengal, and Kerala, recorded lower capex intensity. India Ratings noted that these disparities stem from differing fiscal flexibility, committed expenditure obligations, spending priorities, and local infrastructure development needs.
The agency also highlighted a marked recovery in the execution of planned spending. Actual capital spending as a share of budgeted capex had fallen to 70.7% in FY21 from around 85% in FY18 and FY19. Utilisation recovered to surpass 90% in FY25 revised estimates, a level expected to persist through FY26 and hold steady in FY27.
