‘Centre, state CPSE capex could decline in FY25’

New Delhi: Capital expenditure by central infrastructure ministries, central public sector enterprises (CPSEs) and state governments is expected to slow in FY25 after rising to a five-year high of 5.87% of GDP in FY24 due to reduced spending in the first two quarters, two people familiar with the matter said.

The likelihood has prompted policymakers to address the slowdown in the upcoming Union Budget.

In FY24, capital expenditure by the Centre, CPSEs, and state governments reached ₹17.35 trillion, or 5.87% of GDP, marking an increase from ₹13.57 trillion, or 5.03% of GDP, in FY23, according to data from the Ministry of Finance. 

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Capital expenditure had fluctuated in the preceding years. In FY20, it stood at ₹11.57 trillion, or 5.76% of GDP, which decreased to ₹10.70 trillion, or 5.39% of GDP, in FY21. The figure then rose again to ₹12.57 trillion, or 5.33% of GDP, in FY22.

To be sure, the Indian economy was recovering from the pandemic during FY21 and FY22.

Capital expenditure by the Centre, which saw a significant decline in the first half of FY25, is anticipated to improve in the second half, to meet the targeted levels mentioned in the last annual budget, the first person mentioned above said.

Likely to lag last fiscal

"While the overall capital expenditure (by the Centre, states and CPSEs) in FY25 is expected to meet the target or reach close, the growth could be lower than the previous fiscal," the first person mentioned above said on the condition of anonymity.

"The Centre will continue its capital expenditure push in the upcoming budget to bolster economic growth, while also encouraging states to follow suit through initiatives such as the ‘Special Assistance for Capital Investment’ scheme and interest-free loans," the first person mentioned above added.

During FY25, a realistic target for the capital expenditure by central infrastructure ministries, CPSEs and state governments is expected in the ₹18 trillion- ₹19 trillion range in FY25, both the people mentioned above added.

According to the latest budget documents, the Centre's capital expenditure plans stand at about ₹11.11 trillion during FY25, up from ₹10 trillion in the previous year.

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The capital expenditure plan for 20 major states during FY25 stands at about ₹8.5 trillion.

A Ministry of Finance spokesperson didn't respond to emailed queries.

The GDP for Budget FY 2024-25 is estimated at ₹326.37 trillion which is 10.5% over the Provisional Estimates of FY 2023-24 at ₹295.36 trillion.

India’s gross domestic product (GDP) growth slowed to 5.4% in the September quarter, down from 6.7% in the previous quarter, marking the slowest pace in nearly two years due to a downturn in manufacturing, urban consumption and corporate earnings.

In FY24, India recorded a GDP growth of 8.2%, with quarterly growth rates of 8.2% in Q1, 8.1% in Q2, 8.6% in Q3, and 7.8% in Q4.

Notable decline

According to a November report by CareEdge, India’s public capital expenditure (capex) saw a notable decline in the first half of FY25, with central Capex shrinking by 15.4% and aggregate state capex falling by 10.5% year-on-year.

During the April-September period, the Centre achieved only 37% of its budgeted capex target, while 20 major states collectively met just 28%.

The report noted a marginal recovery in public capex in the September quarter, driven by a 10.3% year-on-year growth in central capex.

Meanwhile, state capex continued to contract, falling by 3.8% year-on-year, during the same period.

However, the central government's capex is expected to surge by 25% on-year during October-March, according to a recent report by Jefferies.

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According to a recent report by rating agency ICRA, the combined capital spending of a sample of 13 major state governments is expected to expand by 13% to ₹6.5 trillion in FY2025 missing the FY2025 Budget Estimate (BE) of ₹7.2 trillion, following a dull start to the capex in the initial months of this fiscal and the anticipated undershooting in states’ revenues.

"The slowdown in growth in Q2 could be attributed to various reasons, including geopolitical challenges. However, India's underlying growth story is intact," the second person mentioned above said.

"The upcoming budget will continue with its thrust towards economic growth and reforms. There are likely to be incentives for states to increase their capital expenditure in terms of increasing allocations to the ‘Special Assistance for Capital Investment’ scheme and other measures," the person added, requesting anonymity.