Centre’s FY25 capex may fall short of target by Rs 50-k cr
With the general election-induced slowdown on asset-creating spending continuing to weigh in, the Centre’s capital expenditure may be lower by around Rs 50,000 crore in the current financial year as against the target of Rs 11.11 lakh crore.
In the first five months of 2024-25 (FY25), the Centre’s capex was lower by around Rs 73,000 crore compared with the year-ago period. (Rs 3 lakh crore in FY25 vs. Rs 3.73 lakh crore in FY24).
Railways and road investments are funded through the Budget and account for 47% (Rs 5.24 lakh crore) of the Centre’s capex budget of Rs 11.11 lakh crore for FY25.
According to the latest data, the Railways Board invested Rs 1.16 lakh crore in H1FY25, down 19% compared with Rs 1.43 lakh crore in H1FY24. Similarly, the National Highways Authority of India (part of the roads sector) invested Rs 82,034 crore, down 9% compared with Rs 90,000 crore in the year-ago period.
Given the slower pace of public capex including the Centre and states, Finance Minister Nirmala Sitharaman recently held review meetings with key ministries having significant budget capex outlays including the railways and roads ministries. She urged them to meet the H1 capex shortfall in Q3FY25.
“Revised estimate (RE) meetings underway. Difficult to assume but we are hopeful that the ministries will achieve outlays that were sought by them and provided,” a government senior official told FE.
The pre-budget meeting to finalise the RE for FY25 and budget estimate for FY26 commenced with ministries on October 10 and would conclude on November 11, 2024. During the meeting, the ministries would be asked to adjust their demands based on their spending so far and ability to spend by March 2025 as far as FY25 is concerned.
The government’s capex fell by 19.5% to Rs 3 lakh crore in April-August of FY25, due to a slowdown in spending in Q1 due to general elections.
“To achieve FY25 capex target of Rs 11.111 lakh crore, the capex in the rest seven months of FY25 has to grow 41%, which appears to be a difficult and chances are high that the government may undershoot their FY25 capex target,” said D K Pant, India Ratings Chief economist.
The Centre’s capex turned out to be lower by around Rs 50,000 crore, partly due to a slowdown on account of a clutch of state elections, leading to a lower fiscal deficit of 5.6% of GDP as against the revised target of 5.8%. Going by the comfortable revenue position and likely shortfall in capex, the Centre may report a lower fiscal deficit than the target of 4.9% in FY26, analysts reckon.
“In our view, revenue expenditure and capital expenditure will accelerate in H2FY25, especially the latter. Given the ample headroom left, there is a chance that capex may miss the ambitious target, which may result in the fiscal deficit slightly undershooting the July 2024 estimate,” said Aditi Nayar, ICRA Chief Economist.
Post-Covid, the Centre’s capex has grown on an average by 30% on an average between FY22 and FY24 as the government has adopted a capex-led growth strategy.