A recent report by Morgan Stanley predicts a slowdown in central government capital expenditure (capex) for the remainder of the 2025-26 fiscal year. This prediction is based on the observation that a significant portion of the annual allocation has already been utilized in the first half of the fiscal year, leaving a softer pace of expenditure in the coming months. The report highlights that central government capex reached Rs 6.6 lakh crore (trillion) in the first nine months of the fiscal year, accounting for 58.7% of the budgeted target for the full year. This translates to capex spending of 3.4% of GDP, a substantial increase from the 2.7% of GDP in the previous fiscal year. The government had budgeted a significant capital expenditure of Rs 11.21 lakh crore (trillion) for the 2025-26 fiscal year. The report further notes that around 55% of the central government's capital spending has been directed towards roads and railways, reflecting a continued focus on infrastructure creation and connectivity. On the state government side, capex has remained range-bound, with states' capex standing at around 1.7% of GDP on a FYTD26 basis, similar to last year. However, state-level capital spending has been growing at an average rate of 13% year-on-year, suggesting steady but contained expansion. Capital spending by central public sector enterprises (CPSEs) has also shown healthy momentum, with CPSE capex reaching 64% of its FYTD26 (April-November) target, registering a growth of 14% year-on-year. This growth has been led by strong performance from Indian Railways and the National Highways Authority of India (NHAI). While central government capex may slow in the remaining months of FY26, the report highlights an improving outlook for private capex, citing several supportive factors, including fiscal and monetary stimulus improving consumption growth and a step-up in policy action to address structural challenges such as new labor codes.
