Mint Explainer | What the Centre’s capex growth is really hiding
It has been five years since the Centre raised the capex—from 2.1% of GDP in FY21 to 3.1% in FY26—in an attempt to boost the economy through multiplier effects. While a strong growth persisted this year, the headline growth figure hides more than it reveals about the real momentum.
The government’s capital expenditure has surged sharply in the first five months (April–August) of FY26. The Centre has already spent nearly 39% of its annual outlay of ₹11.2 trillion, marking a robust 43% year-on-year jump. But a closer look at the numbers tells a more nuanced story. Mint breaks it down.
Is the capex growth artificially inflated?
The Centre’s 43% capex growth in April–August is inflated by several temporary factors. A part of the surge reflects a low base, as spending was restrained in the same period last year due to elections.
Beyond that, two large allocations have boosted the headline number without creating new assets. Of the ₹4.32 trillion capital expenditure so far, ₹50,000 crore has been transferred to the Food Corp. of India (FCI) and ₹17,900 crore to the telecom department.
Madhavi Arora of Emkay Global notes that the FCI transfer may later be adjusted with subsidies, while most of the telecom allocation is slated for BSNL recapitalization.
How much is the real capex growth then?
The two outliers mentioned above accounted for 15% of the total capex until August. Once these two outliers are removed, the Centre’s spending comes down to ₹3.63 trillion in April-August, resulting in an average spending of ₹72,700 crore per month. While this is still 21.8% higher than the ₹59,700 crore average in the same period last year, it pales compared to the full-year average monthly spending of ₹87,700 crore.
In essence, the Centre’s capex growth is coming off the back of a low base. To be sure, capex momentum is often slower in the first half of the year and picks up pace in the latter part of the year. This could play out this year as well.
Where was the most money spent in April-August?
Even though all figures look inflated due to the base effect, the capex spending by several ministries/states is noteworthy and may have offered the much-needed support to growth.
Transfers to states rose 78.2% year-on-year in the first five months, defence spending 53.5%, road and highways 10.8%, and railways 9%. These are the sectors that drive physical asset creation, jobs, and multiplier effects in the economy. The robust transfers to states by the Centre have helped states front-load their capex spending as well.
How are states contributing to the capex push?
As the Centre pushed for capex-led growth in the post-pandemic period, it rolled out 50-year interest-free capital expenditure loans for states to channelise the spending better. A large part of the Centre’s capex, around 15%, is made up of these transfers to states and the Union territories.
With state revenues under pressure from slower devolution (due to slow tax growth) and rising welfare costs, these funds helped states achieve 14% growth in April–August, again, largely off a low base. Excluding transfers to states, core capex growth falls to 15.6% year-on-year.
Why has the capex push not spurred private investment?
It has been five years since the Centre raised the capex—from 2.1% of GDP in FY21 to 3.1% in FY26—in an attempt to boost the economy through multiplier effects. However, it has failed to boost private investments, with companies sitting on cash instead of investing amid back-to-back events leading to heightened uncertainty around the globe.
As a result, the share of private corporate investment in the overall economy has declined, with its share falling from over 40% of the total fixed investment in 2015-16 to 33.6% in 2023-24. The Reserve Bank of India also noted in its August monthly bulletin that the firms have remained cautious due to domestic and external demand uncertainty.
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