States' capital expenditure growth is likely to slow down to 8-10% in fiscal 2027 from 17% in fiscal 2026, a report said on Monday.
The moderation will primarily result from tighter fiscal headroom due to rising revenue expenditure commitments and a moderation in revenue growth, Careedge Ratings said.
The domestic rating agency warned that the moderation may be accentuated by a geopolitical crisis in West Asia, explaining that the conflict's fallout could hit capital outlays by exerting pressure on both revenues and expenditures through its impact on energy prices.
"With fiscal space becoming tighter due to rising revenue expenditure commitments and moderation in revenue growth, state capex growth is expected to moderate to around 8-10% in fiscal 2027," the agency said.
Its associate director Prasanna Krishnan said the revenue growth for states is expected to remain moderate through fiscal 2026 and fiscal 2027 on a tapering of grants from the centre, with external headwinds further weighing on overall receipts in fiscal 2027.
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However, the revenue expenditure is likely to stay elevated, driven by continued social sector spending, a higher state share under select schemes, and additional inflationary pressures from elevated commodity and fuel prices amid the West Asia conflict.
"..the revenue deficit is projected to widen from 0.8% of GSDP in fiscal 2025 to around 1.2% by fiscal 2027. Maintaining fiscal discipline will therefore remain critical as states balance welfare commitments with the need to sustain capital investment," Krishnan said.
The agency elaborated that revenue receipts are projected to grow by 6.2% in fiscal 2026 and 7.9% in fiscal 2027, trailing nominal GSDP, due to moderation in grants and some sensitivity to external factors that may weigh on overall revenue realisations.
Prominent states such as Uttar Pradesh, Madhya Pradesh, Gujarat, Maharashtra and Telangana have continued to prioritise capital expenditure despite moderate revenue growth, reflecting a sustained focus on infrastructure creation, the agency said.
The agency said it has analysed the finances of the top 15 states, which account for 89% of India's Gross State Domestic Product (GSDP) for the financial year ending March 31 2025 (fiscal 2025), to provide insights on aggregate state finances.
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(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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