Why is this important? because watching indian states keep blowing more and more money is a big warning sign for its states finances.
its also important because as himachal pradesh has shown the growing fiscal crisis in indian states cant be ignored forever.
the more money spent on debt the less money to invest in improving infastrucutre or education
Posted by ewatta200
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**New Delhi:** Over the past decade, state government budgets across India have experienced dramatic expansion. However, a closer look at how the money is being spent reveals a concerning trend: investment spending is diminishing, even in the nation’s wealthiest states.
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Consider Karnataka and Maharashtra, two of India’s most industrialised and fiscally robust states. Both have witnessed their total expenditures more than double since 2017-18. Specifically, Karnataka’s spending increased from Rs 1.86 lakh crore to Rs 4.48 lakh crore by 2026-27, while Maharashtra’s expenditure rose from Rs 2.84 lakh crore to nearly Rs 7.7 lakh crore over the same period.
Despite these expanding budgets, the proportion allocated to capital expenditure—which encompasses spending that constructs infrastructure, generates assets and supports long-term growth—has markedly declined.
Instead, an increasing portion of state finances is being consumed by revenue expenditure and debt servicing, thereby reducing the capacity for investment.
# The quiet fall in public investment
The shift becomes evident when one looks at capital expenditure as a proportion of total expenditure.
Graphic: Shruti Naithani | ThePrint
In Karnataka, capital expenditure constituted over 24 percent of total spending in 2020-21. However, this proportion has steadily declined since then.
By 2024-25, it had decreased to 15 percent, before experiencing a slight recovery to approximately 16.7 percent in 2026-27. Maharashtra exhibits a similar trend. Capital spending reached 21.7 percent of the budget in 2021-22, but subsequently declined sharply, stabilising between 12 percent and 15 percent in the years that followed.
In absolute terms, capital spending has increased modestly. Nevertheless, relative to the size of state budgets, investment spending has evidently diminished in priority. This is significant because capital expenditure possesses one of the highest fiscal multipliers among government spending categories.
Investments in roads, irrigation systems, urban transport networks and energy infrastructure enhance productive capacity and stimulate private investment. When the proportion of such spending declines, the long-term growth impact of government expenditure weakens.
# The revenue spending trap
The observed reduction in investment spending signifies a more profound structural transformation within state budgets, wherein revenue expenditure is progressively crowding out capital spending.
Revenue expenditure encompasses salaries, pensions, subsidies, welfare schemes and administrative costs. While these expenditures are essential for government operations, they predominantly constitute recurring obligations that leave little lasting economic assets behind.