Govt capex likely to miss FY2025 target by ₹1.4 lakh crore amid spending slowdown: ICRA

The Union government's capital expenditure (capex) is likely to miss the FY2025 target of ₹11.1 trillion by nearly ₹1.4 trillion, credit rating agency ICRA said in its pre-Budget expectation note citing lower-than-expected spending in the first eight months of the fiscal year. The government's capex contracted by 12.3% to ₹5.1 trillion during April-November FY2025, accounting for 46.2% of the revised budget estimate (RBE), compared to ₹5.9 trillion in the same period last year.

ICRA said the contraction was largely due to the lull seen during the 2024 Lok Sabha elections, followed by the monsoon-led slowdown seen in the first half of FY2025.

To achieve the capex target, the government would need to spend approximately ₹1.5 trillion per month during December-March FY2025, which would entail an expansion of around 65% on a YoY basis.

"This appears rather challenging, and at this juncture ICRA expects the capex target of Rs. 11.1 trillion for FY2025 to be missed by ~Rs. 1.4 trillion, which would still entail a high growth of ~26% during the last four months of the fiscal," the agency said.

The April-November decline was driven by reduced capital outlays in defence services (-7.5%), and lower capex by the Ministry of Road Transport and Highways (MoRTH) (-15.9%), and the Ministry of Railways (-0.8%). Meanwhile, capex by the Ministry of Finance (MoF) rose marginally by 5%.

To meet their respective targets for FY2025, the capex of defence ministry, MoRTH, railways, and finance ministry need to rise by 47.8%, 40.4%, 14.8%, and 155%, respectively, during the December-March period.

ICRA also noted that the finance ministry's capital transfers to states increased modestly by 5% to ₹701.4 billion during April-November FY2025, partly due to sluggish disbursal of interest-free capex loans.

The government has since relaxed several norms to expedite the release of interest-free capex loans to states.

ICRA expects the FY2026 capex target to be set at ₹11 trillion, similar to the FY2025 budget estimate but a 12-13% increase over its projected turnout.

“This would result in an improvement in the quality of expenditure in FY2026 (capex/total exp = ~22%), after the likely deterioration in FY2025 (20.6%), compared to FY2024 (21.4%),” it added.