States’ capex utilisation slips to 77% in FY26 despite bigger budgets

By: Team India Tracker

After 11 months of FY26, 22 states had used just over 55% of their annual capex budgets, leaving a large share of spending concentrated in March, the final month of the fiscal year

India’s growth story increasingly rests on the spending power of its states. From highways and irrigation systems to schools, hospitals and urban infrastructure, state governments now account for a large share of public investment in the economy. But the latest fiscal data suggest that while states continue to spend aggressively, the momentum behind infrastructure creation has begun to slow. 

An analysis of monthly accounts released by the Comptroller and Auditor General (CAG) shows that 20 states together utilised 77.23 per cent of their budgeted capital expenditure (capex) allocation in 2025-26. Against a combined budget estimate of Rs 10.26 lakh crore, actual spending stood at Rs 7.92 lakh crore. 

At first glance, that may not look alarming. After all, the amount spent was slightly higher than the Rs 7.79 lakh crore spent in the previous year. But the deeper concern lies in the decline in utilisation efficiency. In 2024-25, 26 states had used 80.23 per cent of their budgeted capex allocation. The latest numbers show that states are finding it harder to convert budget announcements into actual project execution. 

That matters because capital expenditure is the part of government spending that builds long-term economic capacity. Roads, bridges, rail links, irrigation projects and public infrastructure create jobs immediately while also improving productivity over time. Economists often distinguish between “good expenditure” and “consumption expenditure”, and capex usually falls firmly in the first category. 

The slowdown therefore comes at an uncomfortable moment. Private investment remains uneven, exports face global uncertainty, and the Centre has increasingly relied on states to sustain India’s infrastructure push. 

The state-wise data reveal a strikingly uneven picture. Telangana emerged as the standout performer, spending 147.58 per cent of its budgeted capex target. Karnataka crossed 100 per cent utilisation, while Himachal Pradesh, Haryana, Bihar, Madhya Pradesh, Punjab and Gujarat also reported relatively strong spending performance. 

On the other side were states that struggled to spend even two-thirds of their allocations. West Bengal recorded the weakest performance, utilising just 48.06 per cent of its capex budget. Rajasthan followed at 51.82 per cent, while Chhattisgarh and Tripura also remained well below their targets. Odisha, Andhra Pradesh, Kerala and Uttar Pradesh spent less than 70 per cent of what they had budgeted for infrastructure and asset creation. 

The reasons vary from state to state. In West Bengal, the Assembly elections likely disrupted project execution and administrative approvals. In other states, delays in land acquisition, weak project pipelines or tighter finances may have slowed spending. 

But there is another pattern hidden in the numbers: India’s year-end spending culture remains deeply entrenched. After the first 11 months of FY26, 22 states had utilised just over 55 per cent of their annual capex budgets. That means a huge chunk of spending happened in March, the final month of the financial year. 

This “March rush” is a familiar feature of Indian public finance. Departments hurry to release funds and clear bills before budget allocations lapse. The problem is that such compressed spending often reduces efficiency. Projects get approved late, contracts are rushed through and expenditure becomes more about meeting accounting targets than creating durable assets. 

Interestingly, revenue expenditure — the spending that goes toward salaries, subsidies, pensions and day-to-day administration — showed far steadier progress. The 20 states spent 87.77 per cent of their combined revenue expenditure budgets of Rs 50.16 lakh crore during FY26. 

This contrast tells an important story about state finances. Welfare and routine expenditure are easier to execute because they are politically sensitive and administratively recurring. Infrastructure projects, by contrast, require planning, approvals, coordination and execution capacity. When finances tighten or elections intervene, capex is often the first casualty. 

The revenue side of state finances is also showing signs of pressure. States collected 91.64 per cent of their budgeted tax revenues in FY26, lower than the 95.27 per cent achieved the previous year. Slower tax collections reduce fiscal flexibility at a time when states are already balancing welfare commitments, infrastructure spending and rising debt obligations. 

The challenge ahead is therefore not merely about spending more money, but spending it better. India’s states are now central to the country’s growth engine. If capex slows or becomes concentrated in last-minute bursts, the quality of public investment suffers. 

For policymakers, the latest numbers offer both reassurance and warning. States are still spending heavily, and some continue to push infrastructure aggressively. But the broader trend suggests that fiscal stress, election cycles and administrative bottlenecks are beginning to weigh on investment momentum.