New Delhi [India], November 6 (ANI): Capital outlay of states is set to accelerate to ~Rs 8.5 lakh crore this fiscal, driven by higher central support and greater fiscal headroom that will enable increased infrastructure spending, according to a Crisil Ratings report.
Urban infrastructure is expected to lead this expansion, with spending momentum strengthening during the second half of the fiscal year. Converting this available fiscal space into actual investment will depend heavily on the timely release of funds and efficient project execution.
The findings stem from an analysis of 18 states, which together account for about 90 per cent of India's gross state domestic product (GSDP). The report noted that capital outlay growth will outpace the ~8.6 per cent recorded last fiscal. States are expected to achieve ~84 per cent of their aggregate budgeted capital outlay, marking an increase from ~82 per cent last fiscal and aligning broadly with the five-year average of ~85 per cent through last fiscal.
This positive outlook is supported by larger allocations under the Special Assistance to States for Capital Investment (SASCI) scheme, stronger nominal GSDP growth, and a broadly stable absolute revenue deficit.
Introduced in fiscal 2021, SASCI provides states with 50-year interest-free loans outside their normal borrowing limits. The allocation under the scheme has risen by 33 per cent to Rs 2 lakh crore this fiscal, establishing it as a primary driver of state capital expenditure.
Highlighting this dynamic, Anuj Sethi, Senior Director at Crisil Ratings, stated, "Higher SASCI support gives states additional room to invest without drawing on their normal borrowing limits."
"The scheme has demonstrated strong utilisation, which should help translate this funding into capital spending," Sethi said. "Fiscal flexibility is also expected to improve as revenue receipts grow faster than revenue expenditure, supported by GST collections and tax devolution from the Centre, helping keep the absolute revenue deficit broadly stable."
Revenue receipts are set to outpace revenue expenditure by ~75 basis points. Early spending trends reinforce this trajectory, with capital outlay growing about 8.8 per cent on-year in the first five months of the fiscal, even as SASCI disbursements reached only ~25 per cent of budgeted allocation by September 2026, largely through the untied component. Momentum is expected to pick up in the second half when tied allocations are typically released.
However, the pickup in capital spending will not be uniform across sectors. Transport, primarily roads and bridges, remains the largest component, accounting for around one-fourth of the total aggregate outlay. Water supply, sanitation, housing, and urban development (WSS-H-UD), along with irrigation, each contribute nearly one-fifth, with the balance distributed across rural development, energy, healthcare, agriculture, and education.
Commenting on sector trends, Aditya Jhaver, Director at Crisil Ratings, stated, "Urban infrastructure will drive capital spending, with the WSS-H-UD segment expected to post high double-digit growth, supported by higher state allocations and funding under key centrally sponsored schemes."
"Transport will remain the largest spending segment, although growth is expected at a high single-digit rate as states continue investing in road maintenance and connectivity," Jhaver said. "The spending mix therefore reflects a stronger push towards urban infrastructure alongside sustained investment in roads."
In contrast, irrigation spending is expected to grow in the low single digits because of lower budget allocations by a few key states and a high base last fiscal. The report noted that achieving this spending outlook will depend on the timely fulfilment of SASCI-linked conditions, efficient release and utilisation of funds, and the willingness of states to borrow amid rising interest rates.
Furthermore, weaker-than-anticipated revenue growth or higher spending on relief and welfare measures due to a deficient monsoon or persistent inflationary pressures could constrain available fiscal space. (ANI)
States' capital outlay set to accelerate to Rs 8.5 lakh crore this fiscal: Crisil Ratings
