States' capex focus pivots away from roads to social services

The capital expenditure of states on roads is budgeted to slow down in FY25 as they focus on other social services and try to meet their fiscal targets, as per ET's analysis of Budget documents.

The share of states' spending on roads in the total capital spending will decline to 21.7% in FY25 from 21.9% in the current fiscal, according to the Budget documents of 21 states and Union Territories (UTs).

In FY23, the share was higher at 24.7%. "Road capex has slowed down because of a shift towards social services, specifically public health, family welfare and education," Paras Jasrai, senior analyst at India Ratings and Research, told ET.


Jasrai said that this is also a post-pandemic phenomenon, where the share of social services increased to 32% from 22% in the pre-pandemic period. "Post-pandemic states have realised that there is a requirement to support and develop human capital," Jasrai said. Fiscal considerations may also dampen capital expenditure.

Madan Sabnavis, Bank of Baroda's chief economist, said, "Compromises are being made to ensure fiscal targets are met."

States are trying to reduce their fiscal deficit to 3% of GSDP in FY25 from 3.4% in the previous year. ET's analysis of 21 states and UTs found that state spending on roads and bridges is set to expand by 7% in FY25, compared with the 22% growth witnessed in the previous year. These 21 states/UTs will likely spend ₹1.85 lakh crore in FY25 compared with ₹1.73 lakh crore spent in the previous fiscal, as per the revised estimates. Of the 21 states/UTs, nine will likely witness a reduction in road spending in FY25 compared with the previous year.

Bihar's capex on roads, for instance, is likely to be ₹3,818.6 crore in FY25--nearly half of ₹6,935.9 crore in FY24. Assam and Madhya Pradesh are expected to witness a 24% decline. West Bengal's spending is set to decline by 13.4%. On the other hand, Chhattisgarh, Gujarat, Kerala, Punjab, Rajasthan and Telangana are likely to step up their spending on roads by over a third.

The capital expenditure on roads is also budgeted to grow at a slower pace for the Centre, decelerating to 3% in FY25 from 28% in the current fiscal. The share of roads in the Centre's total capex will likely come down to 24.5% from 27.8% in the current and previous fiscal.