States' Capital Outlay Decline: Focus Shifts to Emerging Sectors in 2025-26

Report by Elara Capital reveals a slowdown in states' capital outlay growth to 15.9% for 2025-26, down from a 23.4% average in prior years. Despite challenges, focus shifts towards water supply and digital infrastructure, while roads see reduced allocations. Variations among states show differing investment priorities.

In 2025, state budgets indicate a slowdown in capital outlay growth, reflecting a trend seen in the Union budget, according to Elara Capital. The analysis highlights an expected 15.9% dip in states' capital outlay for 2025-26, compared to a 23.4% average in previous years.

Despite the reduction, capital outlay as a percentage of GSDP remains stable at 2.8%. However, Elara Capital's report notes only 54.3% of revised estimates were spent by January this fiscal year, casting doubt on achieving the 2024-25 target. Key investment areas for 2025-26 have shifted from roads to sectors like water supply, sanitation, digital infrastructure, and irrigation.

Some states show varied capital outlay trends for 2025-26. Maharashtra forecasts an 11.1% decline, while Andhra Pradesh projects a significant 68.8% increase. While Bihar, Assam, and Himachal Pradesh see cuts, Gujarat and Uttar Pradesh plan more aggressive investments.

(With inputs from agencies.)