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The total capital outlay of top 18 states is projected to grow 7-9 per cent (year-on-year) to Rs 7.2 lakh crore this fiscal, building on a high base from last fiscal when it grew 27 per cent to Rs 6.7 lakh crore, a report showed on Tuesday. 

The Centre raised the allocation for interest-free capex loans to all states to Rs 1.5 lakh crore this fiscal from Rs 1.3 lakh crore last fiscal.

Last fiscal, 80 per cent of the allocated amount was transferred to state governments and we expect the proportion to be similar this fiscal, too, said a Crisil Ratings report.

“Key segments which will drive the growth are transport, water supply and sanitation (including housing and urban development). Irrigation is expected to see a modest growth,” it added.

The 18 states account for almost 94 per cent of the overall capital outlays of state governments in the country. Their capital outlay as a percentage of the gross state domestic product (GSDP) is projected at 2.4 per cent, similar to last fiscal but higher than 2.0-2.3 per cent between fiscals 2018 and 2023.

"We expect a growth of 7-9 per cent in capital outlay, which translates to states achieving 90 per cent of the budgeted target this fiscal. Though similar to last fiscal, it will be higher than the levels of 82-84 per cent achieved between fiscals 2018 and 2023,” explained Anuj Sethi, senior director, Crisil Ratings.

Despite the growth, states are likely to have enough fiscal space with fiscal deficit estimated at 2.6 per cent this fiscal, slightly lower than last fiscal’s level of 2.7 per cent, said Sethi.

The water supply and sanitation segment (including housing and urban development) will continue its steady growth of 7-9 per cent (on-year) this fiscal, driven by higher allocations for centre-sponsored schemes such as Swachh Bharat Mission, Pradhan Mantri Awas Yojana, and Atal Mission for Rejuvenation and Urban Transformation, said Aditya Jhaver, director, Crisil Ratings.