States’ capex holds key to growth momentum
The analysis of key indicators of 18 major states (which comprise 89 per cent of India’s GDP) for the first nine months of 2025-26 suggests that actual revenues and expenditures will be lower than budgeted levels. But, encouragingly, states’ capital spending is expected to report a healthy expansion
The modest growth of their revenues seems to have nudged the states to slow down their revenue expenditure. After the Union Budget, the focus will now shift to states’ budgets to get a holistic picture of general government finances. These budgets will outline states’ revenue growth projections and spending priorities, which tend to vary. But as we await their presentation, the trends of the ongoing financial year offer interesting insights into state finances. The analysis of key indicators of 18 major states (which comprise 89 per cent of India’s GDP) for the first nine months of 2025-26 suggests that actual revenues and expenditures will be lower than budgeted levels. But, encouragingly, states’ capital spending is expected to report a healthy expansion.
In the first nine months, the 18 states’ combined revenues grew by 7.7 per cent, way below the 22 per cent growth indicated in the budget numbers. State GST collections grew a mere 3.3 per cent. Several factors including lower GST rates, income tax rationalisation, easing interest rates, and an above-normal monsoon should have supported consumption. These seem to have been offset by the recovery of the excess Integrated GST apportioned previously to the states. The 11-13 per cent growth of excise duty and stamps and registrations has buoyed overall revenues. But states will miss their budget targets by a sizeable margin.
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