State governments’ capital expenditures from April to February indicate a varied but steadily improving investment cycle, with some large states continuing to invest in infrastructure while others falter due to budgetary constraints.
In the first eleven months of 2025–2026, the total capital outlay by 18 main states increased 9.5% year over year to Rs 4.76 lakh crore, a significant improvement over the meager 0.2% growth seen during the same time the previous year. Although the pace is still varied across regions, the pick-up indicates a fresh push towards asset development.
However, revenue developments have not been as encouraging. From April to February, 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 by a meager 5% to Rs 23.8 lakh crore. States are now compelled to rely more on borrowing due to the weaker income growth.
As a result, total borrowings and liabilities increased by 39% to Rs 6.9 lakh crore, up from 10% during the same time last year. Simultaneously, revenue expenditure growth stayed relatively steady at 10–11%, suggesting that committed spending still accounts for a sizeable portion of state funding.
Divergent tendencies are highlighted in a state-by-state examination. At Rs 72,505 crore, Uttar Pradesh continued to be the biggest capital spender despite an 8% year-over-year decrease. Madhya Pradesh and Karnataka continued to rank among the top investors, with Gujarat coming in second with Rs 62,662 crore, a strong 38% increase.
States that were struggling financially, however, took a more cautious approach. West Bengal and Punjab reported 14% and 6% drops in capital spending, respectively, as a result of revenue constraints and reduced budgetary headroom.
According to economists, public capital expenditures continue to be among the most growth-efficient types of spending since they generate productive assets and attract private investment. Long-term growth will depend on maintaining and enhancing the quality of such spending, as multipliers are predicted to be higher than 2.5 over time.
