States’ capex falls by 6%, public sector capital investment in a prolonged slowdown

The capital expenditures of the state governments have likely decreased on a year-on-year basis in the first five months of the current financial year, according to a report by the Financial Express (FE). This has led to the continuation of restrained capital investments in the public sector.

FE conducted a study to review the finances of 18 states, revealing that their capex between April and August of FY25 fell down by 6% to ₹1.67 lakh crore from the previous year’s ₹1.78 lakh crore.

The states analysed are Gujarat, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu, West Bengal, Bihar, Haryana, Kerala, Odisha, Punjab, Rajasthan, Telangana, Chattisgarh, Uttarakhand, Himachal Pradesh and Assam.

The central government provided a front-loaded tax devolution of ₹1.78 lakh crore to the states in two instalments rather than a regular monthly instalment for October, aiming to alleviate the resource crunch. The Centre had previously made two monthly instalments in June as well.

The states under the review by FE reported an 11.3% growth in their tax revenues in the April-August period of FY25 at ₹11.34 lakh crore. In comparison, 15.5% growth was recorded in the year-ago period.

The report said the states' borrowings increased 27% YoY to ₹3.12 lakh crore in the said five-month period, while a 32.6% growth was noted in the year-ago period.

Furthermore, the states reported an 11.2% annual increase in revenue expenditures in the said five months to ₹14.25 lakh crore. When compared with the year-ago period, 8.8% growth was seen in revenue spending.

Finance Minister Nirmala Sitharaman urged the central ministries to accelerate the capital expenditure to compensate for the shortcomings observed in the first half of FY25 in the third quarter of the year itself, the FE report said.

Central public sector enterprises (CPSEs) and other agencies’ capital expenditure decreased 11% YoY in the first six months of FY25, led by low investment by Railways and the National Highways Authority of India, the report added.