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ARTHA

Ratio of Revenue Expenditure to Capital Outlay (RECO)

7.1
6.7
6.0 6.3 6.2
5.4 5.2
4.9

2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 (RE) 2025-26 (BE)

Source: RBI State Finances, January 2026
RECO: Ratio of Revenue Expenditure to Capital Outlay

At the same time, there has been a notable push towards The expansion of centrally sponsored schemes also
higher capital outlay, rising from 2.3 per cent shapes state spending priorities, often limiting autonomy
pre-pandemic (2018) to 3.0 per cent in 2025–26 (BE), in expenditure allocation.
indicating an improvement in expenditure quality. The
increased capital spending was incentivized by the
Centre’s 50-year interest-free loan scheme that helped Constrained tax autonomy under
prioritize states’ asset creation, especially in irrigation GST and continued reliance on
and water supply projects complemented by transport central transfers restrict states’
and urban infrastructure creation. The ratio of Revenue ability to expand own revenues
Expenditure to Capital Outlay (RECO) has declined
sharply, signaling a shift towards capital formation.
Further, the share of revenue deficit in fiscal deficit has
The increase in capital expenditure is constrained by the fallen from 46.1 per cent (2020–21) to 6.9 per cent
persistence of committed expenditures (including (2025–26 BE), indicating that the increase in borrowing
salaries, pensions, and interest payments), which is funding productive investment. However, states’
account for 32.4 per cent of the total expenditure, and investment in R&D expenditure has been muted around
limit discretionary spending. Additionally, subsidies 0.2 to 0.3 per cent of GSDP (2021-22 to 2025-26 BE),
(particularly in power and agriculture) and welfare with research primarily concentrated in medical, health,
commitments further restrict fiscal space and flexibility. sanitation, agriculture and family welfare.

Receipts of States (% of GDP)

2.3 2.7 3.2 2.6 2.5 1.8 2.1 2.0

4.0 3.2 3.7 3.5 3.8 3.9 4.0
3.0
1.2 1.3 0.9 1.0 1.0 1.1 1.1 1.2

6.4 6.1 5.9 6.2 6.5 6.5 6.7 7.1

2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26
(RE) (BE)
Own Tax Revenue Own Non-Tax Revenue Shareable Taxes Grants-in-aid

Source: RBI State Finances, January 2026

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