States to continue focusing on capex growth despite tightening fiscal headroom: Report
New Delhi, April 20
Indian states will continue to prioritise public investment, with a slight moderation in capital‑expenditure growth to around 8-10 per cent in FY27, a report said on Monday.
This would translate into a capex of about 2.3 per cent-2.4 per cent of Gross State Domestic Product (GSDP), supported by interest-free loans from the Centre, the report from CareEdge Ratings said.
The report cited rising revenue‑expenditure commitments and moderation in revenue growth leading to a tighter fiscal headroom and ease in capex growth.
The ratings agency expected the revenue expenditure to remain high as states absorb higher social spending and face potential external pressures from higher energy and commodity costs.
Revenue receipts of states are projected to grow 6.2 per cent in FY26 and 7.9 per cent in FY27, trailing nominal GSDP, due to moderation in grants and some sensitivity to external factors that may weigh on overall revenue realisations.
Further, the pace of growth in central transfers is expected to ease, constrained by fiscal pressures at the Centre arising from elevated subsidy requirements amid geopolitical developments in West Asia.
"While capex will remain a priority, its growth may moderate amid tightening fiscal headroom, leading to a modest uptick in fiscal deficits and debt," the report said.
"As a result, the revenue deficit is projected to widen from 0.8 per cent of GSDP in FY25 to around 1.2 per cent by FY27. Maintaining fiscal discipline will therefore remain critical as states balance welfare commitments with the need to sustain capital investment," said Prasanna Krishnan, Associate Director, CareEdge Ratings.
The report noted that Uttar Pradesh, Madhya Pradesh, Gujarat, Maharashtra and Telangana have continued to prioritise capital expenditure despite moderate revenue growth, reflecting a sustained focus on infrastructure creation.
"Meaningful traction in monetization of state infra projects and bolstering of investor confidence for Public Private Partnership (PPP) projects in states are critical for funding higher capital outlay", said Maulesh Desai, Director, CareEdge Ratings.
— IANS
Reader Comments
Finally some focus on PPP and monetization! States can't just rely on central loans forever. We need private investment to flow into infrastructure. Hope this report pushes state governments to create more investor-friendly policies. 🏗️
Interesting analysis. The tension between necessary social spending and capital investment is a global challenge, but seems particularly acute here with the projected revenue deficit increase. The mention of external factors like West Asia geopolitics affecting central transfers is a crucial point often missed in domestic discussions.
As someone from Telangana, I'm glad our state is mentioned among those prioritizing capex. The new roads and metro projects are visible. But the report is right - where is the money coming from? Subsidies for power and water are huge. Some fiscal discipline is needed, bahut zyada freebies nahi chalenge.
Moderation in growth to 8-10% is still healthy given the global headwinds. The key is quality of spending - it should be on productive assets like logistics, water systems, and green energy, not white elephants. Hope the Centre's interest-free loans are tied to performance metrics.
The projected rise in revenue deficit to 1.2% of GSDP is worrying. It's easy to promise welfare schemes before elections, but someone has to pay for it later. This report is a necessary reality check for all state finance ministers. Fiscal prudence cannot be optional.
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