States' capex holds key to growth momentum, Pg11

Key Highlights:

• 18 major states' combined revenues grew by 7.7% in the first nine months of 2025-26, falling short of the budgeted 22% growth.
• State GST collections saw a mere 3.3% increase, offset by the recovery of excess Integrated GST previously apportioned.
• The Union government devolved Rs 13.9 trillion to states, slightly less than the budgeted Rs 14.2 trillion.
• States' revenue expenditure grew by 7%, significantly lower than the budgeted 19%.
• Capital spending expanded by 25.7% in the third quarter, resulting in an overall growth of 12.4% for the nine months.
• The Centre provided Rs 1.0 trillion out of the allocated Rs 1.8 trillion under the capex loans to states by end-January 2025.
• State capex is projected to grow by 16-18% for the entire year, supporting the country’s economic momentum.

Detailed Insights:

• Lower GST rates, income tax rationalization, easing interest rates, and an above-normal monsoon were expected to support consumption, but their impact was offset.
• Excise duty and stamps and registrations, with 11-13% growth, buoyed overall revenues, but states are still expected to miss their budget targets.
• Grants from the Centre to states declined by around 18% during the first nine months, contrasting with the projected 60% growth.
• The 50-year interest-free capex loan from the Centre has been a key driver for states' spending on capital projects.
• To meet the Rs 1.8 trillion target for capex loans, Rs 466 billion remains to be disbursed to states in February-March.
• Continued capital spending momentum could lead to 20-25% growth in the fourth quarter, supporting economic momentum amid potential contraction in the Union government’s capex.

Key Concepts Involved:

• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services.
• Capex (Capital Expenditure): Funds used by a company to acquire or upgrade physical assets such as property, buildings, or equipment.
• Budget Estimates: An initial financial plan prepared by the government, outlining projected revenues and expenditures for the upcoming fiscal year.