One of the reasons being cited for slowing growth is the sluggish capex by Centre this fiscal year. But data shows that some of India’s largest States have also reduced the pace of their capital investments. Limited levers of revenue mobilisation and shortfall in revenue due to elections season in the first quarter of FY25 is likely to have contributed to the lower capex spending by the major states.
Analysis of capital expenditure of top 10 States by GSDP in the first nine months of FY25 shows that in five out of the 10 States, capex is lower when compared to the corresponding period in FY24. Andhra Pradesh and Telangana are among the States where capex in FY25 has been much slower compared to last year. It’s noteworthy that both the Southern States had their Assembly elections in 2024.
However, other poll-bound States such as Maharashtra and Karnataka have managed to clock higher capex than the previous year, and monthly data shows that capex of these States picked up pace post September 2024. For Tamil Nadu and West Bengal, capex data was only available till November and both cases have gone slow on capex in this period.
When capex is analysed as a percentage of the budgeted levels, seven out of the top 10 States have spent less than 50 per cent of the budgets on capital expenditure in this fiscal year. With just three more months of capex to account for, Andhra Pradesh, West Bengal, Maharashtra, Gujarat, and UP are among the States with lowest levels of budget utilisation at 27 per cent, 34 per cent, 43 per cent, 43 per cent and 46 per cent respectively.
Ambitious targets
Madhavi Arora, chief economist, Emkay Global Financial Services said States capex in FY25 will likely be around 2.1 per cent of GDP against the budgeted levels of 2.4-2.5 per cent. “There have been limited levers of revenue mobilisation for states but still ambitious revenue targets have been set,” she said. “Additionally it has been a year of Assembly elections in some key capex States,” she added.
Analysts at India Ratings noted that the capex of 21 top States capex in H1FY25 was 0.7 per cent of GDP, down 13 BPS year-on-year. The research firm has noted substantial improvements in COTE (capital outlay/total expenditure) ratio in case of Rajasthan (4.9 per cent points), Assam (4.7), Uttar Pradesh (4.2), Maharashtra (4.0) and Madhya Pradesh (3.5) in the second quarter of FY25.