Projected 9% Growth in State Capex for Fiscal Year 2025
Capital expenditure (capex) for the states is projected to have grown by 9% in the fiscal year 2024-25, a significant decrease from the remarkable 27% rise witnessed in the previous fiscal year. This slowdown is largely attributed to efforts made by the states to keep their fiscal deficit within the target of 3% of their Gross State Domestic Product (GSDP), particularly amidst sluggish tax revenue growth. Public investment levels were impacted due to the occurrence of elections and monsoon rains. This review encompasses 16 major states that collectively contribute to 85% of India’s GDP.
The National Statistical Office’s second advance estimates indicate that India’s economy is anticipated to grow by 6.5% in FY25, a drop from the 9.2% growth achieved in FY24. Specifically, the capital expenditure for FY25 across the 16 states is estimated at Rs 6.65 lakh crore, compared to Rs 6.09 lakh crore in FY24. The states reviewed include Madhya Pradesh, Andhra Pradesh, Uttar Pradesh, Maharashtra, Tamil Nadu, Gujarat, Haryana, Karnataka, Kerala, Odisha, Punjab, Rajasthan, Telangana, Assam, Chhattisgarh, and Uttarakhand.
As part of this capex, Rs 1.3 lakh crore in 50-year interest-free loans from the Centre was allocated in FY25, an increase from Rs 89,000 crore in FY24. The data from these 16 states, which represent a substantial portion of national GDP, suggests that they have managed to somewhat limit their capital expenditure sourced from their own funds to stay aligned with fiscal deficit goals. It is estimated that the aggregate fiscal deficit for these states will amount to Rs 8.47 lakh crore in FY25, corresponding to 3% of their GSDP, slightly better than the budget estimate of 3.2%.
According to Reserve Bank of India statistics, all states and union territories together invested Rs 8.2 lakh crore in FY24 (including central assistance), up from Rs 6.7 lakh crore in FY23. For FY25, the projected budget for capex from states and UTs is Rs 10 lakh crore, which is perceived as slightly optimistic. India’s economy is expected to experience a growth rate of 6.5% in FY25, down from 9.2% in FY24, as per the National Statistical Office’s estimates.
A key factor contributing to the decline in growth between FY24 and FY25 is the reduction in investment demand growth, which decreased from 8.8% to 6.1%, along with a decrease in government final consumption expenditure growth that fell from 8.1% to 3.8% during the same timeframe. The state’s public capital expenditure remained subdued through most of FY25 due to the impacts of general elections and prolonged rains.
The 16 states included in this analysis reported a 10.5% increase in tax revenues for FY25, totaling Rs 27.5 lakh crore, as opposed to a 13.2% growth noted in the previous fiscal year. Their total borrowings rose by 24.5% in FY25, reaching Rs 9 lakh crore, compared to a 26.2% increase in FY24. The slowdown in tax revenue growth has triggered a slight increase in fiscal deficits to 3% of GSDP, compared to 2.9% in FY24 and 2.8% in FY23. Furthermore, these states experienced a 9.7% annual rise in revenue expenditure in FY25, amounting to Rs 35.2 lakh crore, in contrast to the 9.2% increase noted for FY24.
