Centre’s FY26 capex outlay may register marginal increase

The centre’s capital expenditure target for 2025-26 is unlikely to see a significant rise from the current year’s estimate of Rs 11.1 lakh crore. According to sources, the capital expenditure target for next fiscal may only see a nominal increase in the range of 5% to 10%.

The thinking, which is still at a nascent stage, comes amid preparations of the Union Budget 2025-26, and sources indicated that a final decision will be taken closer to the date of the Budget taking into account the overall situation of the economy.

The thinking, however, stems from the expectation of some recovery in private investments next fiscal. “There is indication that some sectors have already started capacity expansion and this is likely to become more broad based in the coming quarters,” said the source.

The absorptive capacity of the economy must be kept in mind while maintaining reasonable estimates, they added. “The target for FY25 at Rs 11.1 lakh crore is already at a record high. One must keep in mind that there is only so much capital expenditure by the government that the government can do in any year. Even a nominal increase over this year’s target will mean a new record high for capex,” the source noted.

The government will however, continue to prioritise its support to the economy by keeping its foot firmly on capital expenditure.

So far in FY25, government capital expenditure has been weaker than anticipated despite an all time high target of Rs 11.1 lakh crore with the General Elections and long monsoon seen to have delayed spending plans by nodal ministries and agencies. The Centre has spent just Rs 4.6 lakh crore or about 42% of its full year target for FY25 between April and October 2024 although there is expectation that it will ramp up spending in the remaining months. However, there could be some savings on the capital expenditure front.

A report by Macquarie on December 9 also highlighted this issue and noted that the most intriguing part was about government expenditure. “The issue has been that many ministries have hit their capacity limits (ability to spend). Add to that, the central government's loan of Rs1.5 trillion to states for capex expenditure comes with onerous caveats (implementation of certain structural reforms) and that has further restricted capex expenditure,” it said, adding that these issues seem to be structural in its view.

In FY24 as well, the Centre had some marginal savings on capital expenditure and had revised its Budget estimate of Rs 10 lakh crore to Rs 9.5 lakh crore.