Govt faces uphill task in meeting lower revised capital expenditure estimates in FY25

Meeting capital expenditure even to match the revised estimates during the current fiscal year is likely to be very challenging, data trends from Controller General of Accounts (CGA) shows.

Interim budget for the fiscal year 2025, presented on February 01, 2024 and final budget, presented on July 23, 2024, kept capital expenditure at ₹11.11 lakh crore. However, the amount was revised to ₹10.18 lakh crore. Data from CGA now shows that the government managed to spend just about ₹7.57 lakh crore during April-January, which is a little over 74 per cent. This means that the government has to spend over 25 per cent or over ₹2.61 lakh crore during February and March which is going to be difficult.

Data for 11 months from CGA shows that there have been just two months when the monthly expenditure was over ₹1 lakh crore — September when the expenditure was ₹1.13 lakh crore and December when it was ₹1.71 lakh crore. This calculation makes the average expenditure of over ₹1.3 lakh crore over two months extremely challenging.  

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However, the good news is that key infrastructure ministries such as Road Transport and Railway are well on track to meet their specific expenditure targets.

According to Aditi Nayar, Chief Economist with ICRA, capital expenditure surged by 51 per cent in January, which would augur well for economic activity in the ongoing quarter. The GoI’s capex needs to expand by 15 per cent YoY in February-March 2025, on a high base, or record a monthly run rate of ₹1.3 lakh crore, to meet the FY2025 RE. “A slight miss in capex relative to the target of ₹10.2 lakh crore for FY2025 can’t be entirely ruled out,” she said.

Reviving private investment

Lower capital expenditure also has an impact on gross capital formation as such a spending is expected to boost investment by the private sector.

According to a research report by SBI, capital formation is expected to register a growth of 6.1 per cent during current fiscal, down from 8.8 per cent in FY24. “The deceleration in gross capital formation from 32.6 per cent of GDP in FY23 to 31.4 per cent of GDP in FY24 is a matter of concern,” the report said. The private sector investment, which had attained its peak of 25.8 per cent of GDP in FY23 (since FY13), has decelerated to 24 per cent of GDP in FY24. “We believe revival in private investment (particularly of private corporations) will be a major key to the future growth trajectory,” the report said.

However, both public and Government investment exhibited growth in FY24 as compared to FY23. Even, public sector investment reached an all-time high level of 8.0 per cent of GDP in FY24 (since FY12). For FY25, given the current trends, “we estimated both savings and investment to increase to 31 per cent and 32 per cent of GDP, respectively,” the report said.