Capex-GDP Ratio Improves to Nearly Decade High
In FY17, capex growth was led by state governments acquiring debt of state power distribution companies under the Ujwal DISCOM Assurance Yojana scheme.
Chennai: Aggregate capex ratio by Indian states touched almost a decade high level in FY25 and FY26. The Scheme for Special Assistance to States for Capital Investment (SASCI) is a major contributor to the increase in capex.
Indian states’ capital expenditure has improved with normalisation of economic activity in the post COVID-19 period and states’ aggregate capex as a proportion of gross domestic product (GDP) during FY22-FY25. Indian states’ aggregate capex increased to 3.0% of GDP in FY25, based on revised estimate, and India Ratings expects the ratio to have remained around 3% in FY26. This marks the highest capex level by states in nearly a decade, with the earlier peak of 3.3% in FY17.
A key contributor to the capex is the spending undertaken by states under the central government’s Scheme for Special Assistance to States for Capital Investment (SASCI) to supplement their own budgetary resources for capital investments. The union government in its FY27 budget has allocated an amount of Rs 1.85 lakh crore to state governments under the SASCI scheme.
In FY17, capex growth was led by state governments acquiring debt of state power distribution companies under the Ujwal DISCOM Assurance Yojana scheme.
“Capital assets creation by Indian states in FY27 is expected to maintain the pace observed in the post-pandemic period”, says Anuradha Basumatari, Director, Public Finance, Ind-Ra.
However, state-wise achievement on capex remains differentiated, with aggregate improvement being led by a handful of states such as Bihar, Jharkhand, Madhya Pradesh, Assam, Uttar Pradesh, Goa, and Odisha. Their capex ratios exceeded the all-states average of 2.6% of GDP. These states achieved a ratio of 4% or above during the period analysed (FY22-FY25).
In contrast, several larger states such as Maharashtra, Tamil Nadu, Rajasthan, Andhra Pradesh, West Bengal, and Kerala reported lower capex intensity. This divergence reflects differences across states in fiscal flexibility, expenditure priorities, committed expenditure obligations, and physical infrastructure development.
Further, actual capital spending as a proportion of budgeted capex weakened significantly during the pandemic period to 70.7% in FY21 from close to 85% in FY18 and FY19. In the post pandemic period, utilisation has improved steadily, reaching above 90% based on revised estimates for FY25; this might have continued into FY26 and is likely to sustain in FY27.
