States' capex growth to slow down to 8-10 pc in FY27: Report

States' capital expenditure growth is likely to slow down to 8-10 per cent in FY27 from 17 per cent in FY26, 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 per cent in FY27,'' the agency said. Its associate director Prasanna Krishnan said the revenue growth for states is expected to remain moderate through FY26 and FY27 on a tapering of grants from the Centre, with external headwinds further weighing on overall receipts in FY27. 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 per cent of GSDP in FY25 to around 1.2 per cent by FY27. 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 per cent in FY26 and 7.9 per cent in FY27, 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 per cent of India's Gross State Domestic Product (GSDP) for the financial year ending 31 March 2025 (FY25), to provide insights on aggregate state finances.