Slow Start, High Stakes: Government Needs To Increase Capital Expenditure By 52 Per Cent To Meet FY25 Budget Target

After a sluggish beginning to capital expenditure (capex) in Financial Year (FY) 2024-25, attributed mainly to the general elections earlier this year, a report by The Indian Express highlights that a significant pickup in government spending is anticipated in the second half (H2) of FY 25.

This expected acceleration comes amid concerns over a broader slowdown in domestic consumption and other growth indicators. However, meeting the capex targets for the second half may require a substantial 40-52 per cent increase in government spending from October to March.

According to ICRA Limited, data from 15 major states reveals that to meet the fiscal year’s budgeted targets, revenue receipts, revenue expenditure, and capex must grow by 30 percent, 26 percent, and 40 percent, respectively, in the second half (H2) of FY25.

In the first half, the 15 states’ revenue receipts grew by only 7.3 per cent, far below the 20 per cent expansion anticipated in the Budget Estimates. This shortfall could be attributed to subdued consumer demand amid high inflation, elections, and climate-related disruptions.

The Centre’s capex for April-September 2024 showed a 15.4 per cent year-on-year decline, amounting to Rs 4.15 lakh crore, as per the latest data from the Controller General of Accounts. 

For the second half, the Centre faces the daunting task of increasing capex by 52 per cent to meet the FY25 budget target of Rs 11.11 lakh crore.

ICRA highlighted that “While we expect a pick-up in the growth of the revenue receipts in H2 FY25 led by states’ own tax revenues, the required rate of 30 per cent seems challenging, led by various domestic and global factors as well as our assessment of continuing contraction in grants.”

Furthermore, ICRA noted that despite a strong push for capex in the latter half of FY25, it is likely to fall short of the levels outlined in the Budget Estimates.

Capital Expenditure (Capex) includes spending on machinery, equipment, buildings, healthcare facilities, education, and other critical sectors. Additionally, capex encompasses the acquisition of fixed assets such as land and investments that yield future profits or dividends.

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