Capex stays strong even as it falls short of FY25 target

She also said the heads may vary under which the capital expenditure happens but expenditure will happen in building of assets. “It’s equally true that when fundamental requirements are taken care of, when you are bringing in addition over it, there is a pace at which those additions happen. So it’s not as if there is no thirst for capital expenditure but now it will be at a pace at which you can build on each one of the developments that you have done prior. So it will continue,” Sitharaman said.

Economic Affairs Secretary Ajay Seth said there are new sectors coming up for capex and it is not a capacity issue. “Effective capital expenditure including what the Government of India provides to states for their capital expenditure is 4.3 per cent of the GDP, one of the highest…it is not a capacity issue, it is the new sectors coming in. If you notice there is the urban sector, there allocations are increasing. That’s one area which requires a renewed focus,” he said.

Post Covid-19 pandemic, the central government focused on a strong push for capital expenditure amid subdued private investment. The government had hiked capex by over 30 per cent in the previous financial years — 35 per cent increase to Rs 5.54 lakh crore in FY22, another 35 per cent hike in capex was done in 2022-23 to Rs 7.5 lakh crore, followed by 37.4 per cent increase to Rs 10 lakh crore in FY24 and by 11.1 per cent to Rs 11.11 lakh crore in FY25.

“The revised estimate of the total receipts other than borrowings is Rs 31.47 lakh crore, of which the net tax receipts are Rs 25.57 lakh crore. The revised estimate of the total expenditure is Rs 47.16 lakh crore, of which the capital expenditure is about Rs 10.18 lakh crore (FY25),” she said while presenting the Union Budget for FY26.

In November, amid concerns over slow capital expenditure by departments and ministries in this financial year, the Centre had directed them to speed up the pace of spending in the third quarter “as much as possible”. The government had nudged the ministries to expedite the pace of capital expenditure to avoid bunching up of capex in the January-March quarter. In the current financial year till December, the government has incurred capital expenditure of Rs 6.85 lakh crore, up 1.74 per cent from Rs 6.74 lakh crore in the corresponding period of the previous year.

Experts have raised concerns over a saturation in the institutional capacity to absorb higher capex and thus, a modest increase in capex in the Budget is being seen as realistic. “The budget has tried to balance the twin objectives of fiscal discipline and supporting growth. At the margin, there is a tilt towards supporting consumption through tax cuts for middle class households, relative to the public capex push seen over the last four years. This shift takes into account the difficulty in executing public capex projects due to budget and institutional capacity constraints, and the need to support private consumption this year, given weakness in urban consumption. Nevertheless, public capex is expected to rise by around 10% y-o-y in FY26, which is a modest but realistic outcome. The government has been able to show a lower fiscal deficit number and give a income tax boost due to another bonanza expected from the RBI dividends and a slower pace of public capex growth,” Sonal Varma, Chief Economist, Nomura said.