For a developing country like India, the importance of capital expenditure for infrastructure cannot be overstated. For years, the capex debate has focused on the scale of public spending by the Centre and the states. A new Rubix Data Sciences report makes a sharper point- the amount of capex is only half the picture. Higher capital expenditure does not necessarily mean higher growth.
Spending is still concentrated. Uttar Pradesh, Maharashtra and Gujarat account for about 30% of total capex, while the top 10 states make up roughly two-thirds of all investment. But some states are much better at converting that investment into economic output.
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Productive capital ratio changes the capex debate
The State of the States report shifts the policy conversation from volume to efficiency through the idea of a productive capital-to-invested capital ratio. The metric captures how much of a state’s accumulated investment is actively generating economic activity and income.
So while Uttar Pradesh, Maharashtra and Gujarat are spending far more than others, Karnataka and Telangana have emerged as outliers, with their productive capital-to-invested capital ratio exceeding 100% in FY2024. That reflects stronger private sector participation, a services-heavy growth model, better asset use, and the time gap between when investments are recorded and when they begin yielding returns.
The Rubix findings suggest that India’s top-performing state economies are not merely those that spend the most, but those able to derive more value from every rupee spent. That does not mean high-spending states have wasted capital. Capital efficiency across India’s top 10 GDP-contributing states improved steadily between FY2015 and FY2024. The broader point is that India’s growth process is maturing. Returns on past investments are beginning to matter as much as the pace of new spending.
State capex efficiency is improving, but unevenly
Gujarat has long been seen as a model of industrial policy, and the state improved its ratio from 83% to 90% over the period, helped by policy continuity and industrial depth. Maharashtra has maintained a high and stable ratio because investment has remained aligned with output in a diversified and mature economy. Uttar Pradesh, Tamil Nadu, West Bengal and Andhra Pradesh have also recorded gains as earlier investments have begun to translate into better asset utilisation.
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Not all states have seen such sharp improvements. Rajasthan and Madhya Pradesh present a more incremental story. Their productive capital has grown steadily, but without the jump in efficiency seen elsewhere. That exposes the limits of a one-size-fits-all capex strategy. Spending produces very different results depending on institutional capacity, sectoral composition and the depth of private participation.
Regional capex concentration is narrowing the growth map
India’s capital expenditure remains tightly clustered. The top 10 states account for roughly 67% of total capex, reflecting the policy preference for backing a handful of large economies. Regionally, the North has gained ground in recent years, driven by large infrastructure projects. The West’s share in new gross fixed capital formation, by contrast, has fallen from nearly half in FY2015 to about a third in FY2024.
Another important dimension in the capex debate is the lag between investment and outcomes. Large infrastructure projects often take years to generate measurable economic returns. That helps explain why high-spending states may not immediately show high capital efficiency. But over time these assets can become more productive. Capital efficiency is not fixed. It changes with project maturity. States lagging today may improve as recent investments begin to yield returns.
A state’s capex record also depends on whether projects are executed on time, whether budgeted outlays are actually spent, and whether assets are maintained after completion. PRS has shown that states often underspend relative to budget estimates, including on capital outlay, while NITI Aayog has warned that quoting capex alone can hide operations, maintenance and lifecycle costs. A road, logistics park or irrigation project that is delayed, poorly maintained or fiscally overcommitted will weaken the eventual return on public investment.
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Private investment decides whether public capex multiplies growth
When states use capital more efficiently, projects become more viable and easier to finance. But since most investment is still concentrated in a few large states, funding will continue to flow there while others risk falling behind. The real challenge is not just to keep investing, but to ensure that these investments create productive assets and generate income across more states.
The idea behind capex was always to create a virtuous cycle: public investment would crowd in private capital, generate demand and lay the foundation for long-term growth. RBI assessments of state finances suggest this strategy has had some success, with states steadily increasing the share of capital outlay in sectors such as roads, power, urban infrastructure and irrigation.
The next phase of growth will depend not just on building more roads, airports or industrial parks, but on ensuring that these assets are fully used and complemented by private investment. Karnataka and Telangana have benefited from this dynamic. Their relatively higher capital efficiency is not just a function of government spending, but of their ability to attract private investment in technology, services and manufacturing.
The result is a multiplier effect. States that struggle to attract private capital will continue to see slower and more uneven returns on their investments.