Telangana Tops With 27 pc Capital Outlay In Total Expenditure

Chennai: Telangana topped among states by using 27 per cent of its total expenditure on capital outlay in Q2FY26. Telangana made the fastest growth of 10.1 percentage points in capital expenditure ratio in Q2FY26 when compared to the second quarter average ratio during FY17-FY25.

The capital outlay of 25 states grew 3.7 per cent yoy during 2QFY26, leading to an improvement in the quality of states’ expenditure. The quality of expenditure is gauged by the proportion of capital outlay in total expenditure (COTE). A higher COTE ratio implies a higher proportion of funds being expended towards productive assets, which is favourable for the economy.

The COTE ratio rose to 13.1 per cent in 2QFY26 from a four-quarter low of 10.3 per cent in 1QFY26. Although it was lower than 13.5 per cent in 2QFY25, it remained better than the long-term second quarter average of 11.9 per cent during FY17-FY25, found India Ratings and Research.

Telangana was at the top by using 27 per cent of its total expenditure for capital outlay. It improved its ratio by 10.1 per cent from 16.9 per cent- the second quarter average during FY17-FY25.

After Telangana, Gujarat had the second highest COTE at 22.3 per cent, Sikkim at 21.4 per cent, Madhya Pradesh at 18.9 per cent and Uttarakhand at 18.8 per cent.

Apart from Telangana, the other states which made major improvements in the COTE ratio in Q2 FY26 were Maharashtra at 7.9pp, Gujarat 6.5pp, Assam 6.0pp, Uttarakhand 3.8pp and Bihar 2.9pp in 2QFY26 compared to their long-term second quarter averages.

Among states recording decline in COTE, Uttar Pradesh was down by 4.6pp, Chhattisgarh 4.4pp and Himachal Pradesh 3.9pp.

Ind-Ra estimates that the states’ aggregate capex in 2HFY26 would increase to 3.4 per cent of GDP against 3.2 per cent in the same period last year. The states’ capex in 1HFY26 was 1.8 per cent of GDP, same as last year.

“The union government distributed an additional instalment of tax devolution to the states in October. Ind-Ra believes this, along with the instrumental long-term interest-free loans, will boost the states’ capex plans in 2HFY26. Historically, the states have tended to increase their capex in the second half of the financial year. We expect the states to increase capex spending further in 2HFY26 to cover the shortfall in targets in 1HFY26,” said Paras Jasrai, Associate Director, Ind-Ra.

The states’ own non-tax revenue too has increased, though grants from the union government continued to pull down the receipts of the states as they fell 27.3 per cent yoy during 2QFY26, sharpest in seven quarters.