State-led capital spending:
State governments’ ability to sustain capital expenditure has come under focus as several States breached the 3% fiscal deficit norm using enhanced borrowing space during FY2021–FY2025.State-led capital spending refers to expenditure by State governments on asset creation such as roads, irrigation, power, health, education infrastructure, and urban development.It is distinct from revenue spending as it raises long-term productive capacity and crowds in private investment.Combined capital expenditure and loans & advances of 28 States grew at a CAGR of 18.5%, doubling to ₹8.4 trillion.Expansion driven by GST compensation loans (₹2.6 trillion in FY21–22) and 50-year interest-free capex loans (₹3.7 trillion over FY21–FY25).Additional borrowing of 0.5–1.1% of GSDP allowed under Union government relaxations and 15th Finance Commission provisions.Power sector reforms enabled several States to access ~₹1.3 trillion in extra borrowing between FY22–FY25.
