FY25 capex push: All you need to know about government spending and stocks to watch out for

The central government’s ambitious capital expenditure (capex) plans for FY25 faced challenges in the first half of the current fiscal, setting stage for an accelerated momentum in the second year. In Budget 2024, ₹11.11 lakh crore were allocated for capital expenditure (capex), roughly around 3.4% of GDP. However, H1FY25 has seen a slowdown in capex.

According to data from the Controller General of Accounts, the Centre’s capex during H1FY25 stood at ₹4.15 lakh crore, a 15.4% decline year-on-year (YoY) and only 37% of the annual target.

The decline, partly attributed to the general election, has increased pressure for accelerated spending in H2FY25. Gross Fixed capital formation, a key measure of infrastructure, investment fell to 30.8% of GDP in Q2FY25 from 31.3% in Q1FY25, indicating a broader slowdown.

Union finance minister Nirmala Sitharaman has asked ministries to expedite their pace of spending in the third quarter of FY25 in a bid to avoid last-minute expenditure rush during January-March of FY25.

Relaxation to Cash Management Guidelines for Ministries and Departments

To meet the capex target, the Indian government is considering easing quarterly spending limits for ministries and departments. This move aims to counteract the slowdown in capex during H1FY25. Cash management guidelines, which currently cap Q4 spending at 33% of the annual allocation, may be relaxed to increase expenditure in H2FY25.

During a review meeting in September, the finance minister urged several ministries and departments to expedite their spending pace in Q3 to meet capex goals and maintain economic momentum through sustained infrastructure investments.

Long-term Interest-free loans to State governments

The Union government is likely to release ₹50,000 - ₹70,000 crore to states during Q3FY25 under its special assistance for capital investments scheme to boost capex in infrastructure projects. In the FY25 Budget, the Centre allocated ₹1.5 lakh crore for 50-year interest-free loans to assist states in their resource allocation. Additionally, private-sector infrastructure investments will be promoted through viability gap funding and supportive policies and regulations. A market-based financing framework will also be introduced.

Ministry of Railways

The Ministry of Railways is likely to continue its investment as per budgetary allocations, focusing on electrifying existing railway tracks, laying in railway lines, and implementing the Kavach Automatic Train Protection System.

Under comprehensive logistics initiatives, 434 railway projects spanning 40,900km across 3 economic corridors - Energy, Mineral, and Cement Corridor, High-Density Network Corridors and Rail Sagar Projects– have been identified, with a total investment of ₹11.16 lakh crore.

During the September 2024 review meeting, the finance minister asked railway officials to expedite the conversion of 40,000 rail bogies to Vande Bharat Standard to enhance the safety, convenience and comfort of passengers.

Ministry of Communication

The Minister of Communication has been allocated ₹28,835 crore for capital expenditure in FY25, focusing on enhancing digital connectivity. In a recent review meeting, the Department of Telecommunications (DoT) Secretary, informed the finance minister about the Capex plan and targets for the BharatNet project, which aims at providing affordable broadband services to citizens in rural and remote areas and about 4G saturation project and other mobile tower projects, which seek to improve connectivity in uncovered villages in remote and difficult areas.

Ministry of Road Transportation and Highways

The Ministry of Road Transportation and Highways has outlined a significant capex plan with a record allocation of ₹2.72 lakh crore, a 90% increase since FY20. Further, the ministry has informed the finance minister about efforts underway to attract private investment and meet asset recycling targets, including monetising ₹30,000 crore worth of roads. The ministry plans to award 12,000 kilometres of national highways this year, emphasising infrastructure expansion. The transportation minister in November last month laid the foundation for projects worth ₹3,700 crore in Bihar, which received a significant investment allocation of ₹26,000 crore in the Budget for road connectivity projects, highlighting the roll-out of capex.

Ministry of Defence

The Defence Acquisition Council (DAC), under the chairmanship Defence Minister, granted Acceptance of Necessity (AoN) for five capital acquisition proposals worth over ₹21,772 crore, indicating the beginning of procurement process.

Ministry of Heavy Industries

The government is also considering on a ₹9,000 crore initiative to support the domestic manufacturing of battery components for electric vehicles (EVs) and clean energy systems. Despite the launch of the ₹18,100 crore production-linked incentive (PLI) scheme for advanced chemistry cell (ACC) batteries in 2021, manufacturers are largely dependent on imported components. Therefore, to reduce this dependency and promote India as a hub for green hydrogen and electrolyzer manufacturing, this scheme is likely to be proposed.

Ministry of Electronics and Information Technology (MeitY)

The government is planning to allocate up to ₹40,000 crore for the proposed electronics component manufacturing scheme, expected to be rolled out later this year. According to media reports, out of the ₹40,000 crore allocated for the scheme, approximately ₹19,800 crore is expected to be designated for operational expenditure subsidies, and another ₹13,000 crore could be allocated for capital expenditure subsidies.

Conclusion

Both government and corporate capex spending have largely remained muted this fiscal. However, to counter this, the Finance Minister has urged ministries to expedite Q3 capex, ease cash management guidelines and implement long-term interest-free loans to states. Ministries like Railways, Road Transport and Telecommunication are focusing on infrastructure expansion and modernisation.

However, it is crucial to monitor the trajectory of the capex going forward. Any further slowdown in subsequent quarters could result in a shortfall leading to a downward revision in the capex targets.