Capex may miss BE for second consecutive year; likely to see higher provision for FY26

Capital expenditure (capex) is likely to be below the Budget Estimates for the second consecutive year in the current fiscal (FY 2024-25). Despite this, the expectation is that the government will maintain capex at over 3.2-3.4 per cent of the GDP.

Finance Minister Nirmala Sitharaman provided over ₹11.11 lakh crore for capital expenditure during FY25, which is 3.4 per cent of GDP. Data from Controller General of Accounts (CGA) show that during April-November period of the current fiscal, actual capex was over ₹5.13 lakh crore or 46.2 per cent of BE. This is over 12 per cent lower than actual expenditure during the corresponding period of the last fiscal (FY24). One key reason for lower capex is Model Code of Conduct during April-June quarter of the current fiscal.

In order to meet BE, the government would need to spend around ₹1.5 lakh crore during December 2024 to March 2025 period, which is challenging. Also, the expenditure has to adhere to cash management guidelines which prescribe not more than 33 per cent of Budget allocation to be spent during January-March quarter of the fiscal year. The limit is 15 per cent for March.

In September last year, the Finance Ministry had said that to provide requisite operational flexibility to execute Budget proposals, stipulations applicable to big releases (₹500 crore or more) for all items of expenditure in the current fiscal will be relaxed. This relaxation is subjected to compliance of guidelines of the SNA (Single Nodal Agency)/CAN (Central Nodal Agency) and of MEP (Monthly Expenditure Plan) and QEP (Quarterly Expenditure Plan).  The Ministry officials have maintained that MEP and QEP may be relaxed for certain Ministries and Departments to facilitate expenditure.

However, experts believe that capex is likely to be below BE despite these measures. In a report, QuantEco Research said: “We conjecture a shortfall of ₹50,000 crore on capex in FY25.”

QuantEco report

Anurag Mittal, Head (Fixed Income) at UTI Asset Management Company Ltd said: “Going by the current trends, we expect that the actual capex may be ₹10-10.25 lakh crore compared to budgeted estimate of ₹11.11 lakh crore.”  QuantEco’s report expects government to announce a capex growth of 10 per cent, in line with FY25 growth (post assumption of shortfall). It said while the pace of growth may appear lower compared to post-Covid years, it needs to be seen from the perspective of capex Budget having grown more than three times between FY20 and FY25. “The need for prioritisation of capex by the Government remains intact, as private capex recovery timeline looks likely to get rolled over (by 2-3 quarters at least) amidst an uncertain global environment,” it said.

Assuming nominal GDP growth rate of 10.5 per in FY26 and given the government’s strong commitment to capex, Mittal said: “We expect the government to maintain capex to GDP ratio of 3.2 per cent and maintain capex between ₹11.2 and ₹11.5 lakh crore.”