Remarkable Growth: Top 5 States to Drive 50% of India’s Capex in FY26, UP and Gujarat Lead the Way

India’s economic trajectory is set for a robust boost as five key states are expected to contribute nearly 50% of the nation’s total capital expenditure growth in the fiscal year 2025–26 (FY26). Among these, Uttar Pradesh and Gujarat have emerged as the largest contributors, reinforcing their status as economic powerhouses driving large-scale infrastructure and development projects.

According to a recent report, this remarkable growth in capital expenditure by states indicates a strategic shift toward long-term asset creation and sustainable development — vital components of India’s journey towards becoming a $5 trillion economy.

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UP and Gujarat: Champions of Capital Expenditure Growth

Uttar Pradesh (UP), India’s most populous state, is leading the race in capital expenditure growth due to its aggressive push in infrastructure, transport, and industrial development. Gujarat follows closely, leveraging its investor-friendly policies and strong industrial base.

The report highlights that these two states alone are poised to account for a substantial portion of the expected ₹10.8 lakh crore state capex in FY26. Their focused investment in highways, logistics hubs, power infrastructure, and industrial corridors stands as a model for other states to emulate.

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States Prioritizing Infrastructure for Sustainable Growth

The five states leading in capital expenditure growth are:

1. Uttar Pradesh
2. Gujarat
3. Maharashtra
4. Tamil Nadu
5. Karnataka

Together, they are estimated to contribute nearly half of the total projected state capex in FY26. The report attributes this to strong fiscal planning, prioritization of asset-building, and alignment with central government initiatives like Gati Shakti and National Infrastructure Pipeline (NIP).

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Capital Expenditure Growth Signals Economic Confidence

The sharp rise in capital expenditure growth reflects growing confidence among states in accelerating economic activity. This expenditure is not just focused on physical infrastructure but also includes investments in education, healthcare, digital infrastructure, and green energy.

In comparison to previous years, FY26 marks a more strategic and planned approach. Instead of focusing on short-term revenue expenditure, states are increasingly channeling funds toward long-term returns through capital-intensive projects.

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Financial Discipline and Borrowing Trends

The report also notes that states like UP and Gujarat have managed their fiscal deficits prudently while maintaining a higher outlay for capex. This financial discipline has allowed them to access borrowings at more favorable rates and efficiently allocate resources.

Furthermore, increased revenue collections from GST and state taxes have given these states the flexibility to invest more confidently in their developmental agendas.

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Private Sector Participation and Investment Boost

Another noteworthy aspect of capital expenditure growth in these top-performing states is the growing participation of the private sector. Public-private partnership (PPP) models are being widely adopted, especially in Gujarat, Maharashtra, and Karnataka, for the development of metro projects, expressways, smart cities, and renewable energy hubs.

This model not only reduces the fiscal burden on states but also ensures high-quality infrastructure and timely execution of projects.

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Challenges Ahead in Managing Capex Efficiency

While the outlook for capital expenditure growth is optimistic, the report does flag certain challenges. Timely execution of projects, procurement delays, and maintaining fiscal discipline amid rising political expenditure are concerns that state governments will need to manage closely.

To maintain the momentum, it’s crucial that states adopt better project monitoring systems and maintain transparency to attract both domestic and foreign investment.

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Central Government’s Role in Supporting State Capex

The Centre has been instrumental in encouraging higher capital expenditure growth by offering incentives such as interest-free loans for capex under special assistance schemes. Additionally, centrally sponsored schemes that co-fund projects have made it easier for states to plan ambitious development goals.

The continued support of the Union government is essential to ensure that the infrastructure push translates into measurable improvements in employment, logistics, and quality of life.

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Conclusion: A Transformative Phase for India’s Economy

India is entering a transformative phase where state-level planning and execution are becoming central to national growth. The spotlight on capital expenditure growth is timely and necessary for sustainable development, and the leadership of states like UP and Gujarat sets a strong precedent.

With infrastructure being the backbone of economic resilience, FY26 could well be a defining year for India’s public investment landscape. If executed efficiently, the outcomes of these investments will ripple across generations, empowering citizens and strengthening India’s position on the global economic map.