New Delhi: State governments sharply ramped up their borrowings in July, with ₹96,769 crore allotments made through state development loans (SDLs), as they sought to fast-track capital spending and inject momentum into economic growth.

This was well above the ₹68,383 crore allotted in July last year, according to the latest data from the Reserve Bank of India (RBI).

The data showed that state borrowings, in terms of allotments through SDL, climbed steadily through the first four months of FY26, from ₹52,870 crore in April to ₹64,722 crore in May and ₹82,207 crore in June, before peaking in July.

The borrowing surge breaks from the usual pattern, where states typically backload SDL issuances in the second half of the fiscal year.

Typically, state governments tap low-cost or interest-free funds in the first half of the fiscal year, including their tax revenues, central tax devolution, GST compensation, and interest-free loans from the Centre, before turning to costlier market borrowings.

Instead, with the Centre accelerating infrastructure outlays and global headwinds threatening the economic outlook, states now appear to be front-loading borrowings to kickstart projects early.

The trend contrasts sharply with the same period last year, when monthly borrowings were far lower.

To be sure, state governments raised ₹2.97 trillion through market borrowings between April and July in FY26, up sharply from ₹2.14 trillion in the same period last year, underscoring an aggressive front-loading of debt to fund development and infrastructure projects.

SDLs are bonds issued by state governments to raise funds for development projects and manage fiscal gaps. Proceeds typically finance infrastructure, welfare schemes, and other public spending priorities.

Auctioned by the RBI on behalf of states, SDLs are a key source of long-term financing for subnational budgets and a vital tool for sustaining state-led growth initiatives.

As things stand, state governments and Union territories are projected to raise ₹2.87 trillion through SDLs in the July–September quarter, higher than the ₹2.6 trillion in the year-ago period, the RBI data showed.

Experts said the move signals a coordinated fiscal push to anchor growth amid geopolitical and trade-related uncertainties, as well as weak private-sector capital expenditure.

Indian states have stepped up early borrowings through state development securities (SDS) in FY26, mobilising over ₹2 trillion in April–June and ₹2.97 trillion by end-July, which reflects proactive debt management and a sharper focus on funding developmental priorities, said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.

"While the overall amount raised still trails the figures in the indicative calendar, the pace and consistency of actual borrowing in Q1 have been rising year-on-year. States are choosing to raise funds early, taking advantage of the Reserve Bank of India's monetary stance and the surplus liquidity in the system," he said.

"Investor appetite for SDS remains healthy, supported by the instruments' sub-sovereign credit quality, SLR eligibility, and broad market trust in their safety. All key investor segments, including banks, insurers, pension funds, and mutual funds, have shown steady interest in SDS as a dependable instrument amid evolving credit and macro conditions," he added.

SDL auction

At the latest SDL auction held on 5 August, states were allotted a total of ₹26,750.018 crore.

Maharashtra led the latest SDL auction, mobilising a substantial ₹6,000 crore, showcasing robust investor confidence in its long-term bond issuances.

Following closely, Andhra Pradesh, Madhya Pradesh, and Telangana each mobilised ₹5,000 crore, reflecting their strong market participation and diverse tenors across securities.

Tamil Nadu secured ₹4,000 crore, demonstrating steady demand for its mix of short- and long-term bonds.

Telangana, capitalising on consistent investor interest, was allotted ₹5,000 crore across its suite of securities with maturities ranging from 19 to 24 years.