The central government’s capital expenditure (capex) in the current financial year (FY26) could exceed the Budget Estimate (BE) of ₹11.21 lakh crore if spending momentum is not slowed sharply in the remaining months.
Navigating the December-March Window
As per Controller General of Accounts (CGA) figures, the government incurred Rs 6.58 lakh crore on capex through November, registering a robust 28% year-on-year (YoY) growth. This represents nearly 58.7% of the full-year BE. To adhere to the Rs 11.21 lakh crore target, remaining spending in the last four months would need to be capped at around Rs 4.62 lakh crore, implying a 14% YoY contraction. For context, capex in the corresponding December-March period of FY25 stood at Rs 5.38 lakh crore, with a 48% YoY growth rate. In FY23, though, the capex contracted 8.2% (YoY) in the December-March period (see chart)
In the recent past, the capex exceeded the budget estimates in FY22. The Centre’s capex in FY22 stood at Rs 5.92 lakh crore against a budgeted estimate of Rs 5.54 lakh crore.
Recent trends indicate some moderation as capex declined 21% YoY in October-November, reflecting initial effort to rein in the pace. However, sustaining such contraction could prove challenging given ongoing infrastructure priorities.
Why Economists are Divided
Economists presented a divided outlook on whether the target will be breached, underscoring the trade-off between growth stimulus and fiscal prudence. Aditi Nayar, Chief Economist at ICRA, anticipated that the government would enhance the allocation for capex somewhat, limiting contraction in the last four months of the fiscal.
However, Madhavi Arora, Chief Economist at Emkay Global, ruled out the possibility of capex overshooting. She stated that Centre’s capex is likely to degrow 20% in the second half after the huge growth in the first half.
Economist NR Bhanumurthy said that the capex target of 3.1% to GDP would be maintained citing the fiscal deficit target of the government. The government has targeted a fiscal deficit at 4.4% of GDP for FY26.
Madan Sabnavis, Chief Economist at Bank of Baroda, said the Centre would more or less maintain the capex underlining that it would also have the prerogative to cut back on the capex in case there are pressures on fiscal balances because of lower tax collections on account of Goods and Services Tax rate rationalization and income tax reliefs.
“We have never seen capital expenditure targets being exceeded in the past. It could be lowered than what was targeted because a part of the capital expenditure includes loans being given to states. There have not been substantial transfers which have taken place on that front. There could be some savings on account of what should be given to the states,” Sabnavis said.