States To Grow Capex By 16-18 pc In FY26 To Rs 8.5 lakh crore
Growth in capital spending by the 18 states reported an impressive pick-up to 26 per cent in Q3 FY2026 from a dull 4 per cent in H1 FY2026, bringing the growth in 9M FY2026 to 12.4 per cent
Chennai: The combined capital expenditure of 18 states is expected to be between Rs 8.5 lakh crore – Rs 8.7 lakh crore in FY26, against Rs 9.6 lakh crore projected in their budget estimates. Still, the states will manage 16-18 per cent growth in capex over last fiscal.
Growth in capital spending by the 18 states reported an impressive pick-up to 26 per cent in Q3 FY2026 from a dull 4 per cent in H1 FY2026, bringing the growth in 9M FY2026 to 12.4 per cent. However, this sharply trails the 30.4 per cent YoY expansion estimated by the states in their Budget Estimates. This high growth was projected over the moderate growth of 8.6 per cent in FY25, finds ICRA.
Under the 50-year interest-free capex loan scheme, the Centre has disbursed Rs 1 lakh crore to states till January 27, 2026, against Rs 1.5 lakh crore allocated in FY2026 Revised Estimates (RE), leaving Rs. 46,600 crore to be released in February–March FY2026.
As most of the capex loans are disbursed with the progress of the projects, ICRA projects a 20–25 per cent rise in state capital spending in Q4 FY2026. The sustained momentum in such spending in Q4 against Q3 also indicates better growth.
The combined revenue receipts of the 18 states rose by a modest 7.7 per cent between April-December, lower than the 22 per cent growth indicated in the Budget Estimates. This was led by an 18.4 per cent contraction in grants during the period, in contrast with the high 60 per cent growth projected by the states in their Budget Estimate.
Growth in the State’s Own Tax Revenues (SOTR), the key component of the revenues of the states, was lower than budgeted on account of a sub-5 per cent growth in State GST and sales tax collections. However, the growth of combined excise duty and stamps and registration charges of the 18 states was moderately healthy at 11-13 per cent. The 15.2 per cent growth in tax devolution during 9M FY2026 supported the expansion in revenue receipts.
Meanwhile, the combined revenue expenditure of the states rose by 7 per cent in 9M FY2026, weaker than the 18.5 per cent expansion included in BE.
