NEW DELHI: With the spending capacity of government departments and agencies already overstretched, the Centre’s capital expenditure will likely fall short of the annual target of Rs 11.11 lakh crore by up to Rs 60,000 crore-Rs 1 lakh crore, sources told FE.
After the gross domestic product (GDP) growth came in at 5.4% in the July-September period year-on-year, the lowest in seven quarters, the government is concerned about the annual capex decline trend across the public sector space — Centre, states and central agencies.
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While the government has been nudging its departments/agencies to further accelerate the pace of investments, officials said that there could still be a shortfall of up to 9% — Rs 60,000 crore-Rs 1 lakh crore — as they could not recoup time lost due to the general elections in Q1FY25 and extended rains in Q2.
The investment shortfall would be across several central government ministries as well as in capex loans to states. However, the railways and the National Highways Authority of India (NHAI), despite trailing the previous years’ achievements so far, could scrape through to meet the capex outlay for them. Together, these two agencies account for Rs 4.28 lakh crore or about 39% of the Centre’s capex budget for FY25.
Undershooting of capex by most departments means the discretionary kitty of Rs 62,602 crore parked with the department of economic affairs (DEA) would be unutilised. The funds were parked with the DEA to cater to additional demand from departments/agencies when they exhaust their budget outlays and need more funds.
Like in the previous year, the states will unlikely be able to fully utilise a chunk of the Centre’s liberal capex loan facility of Rs 1.5 lakh crore for the current financial year, partly due to a lack of absorptive capacity. In April-November, the aggregate disbursement to states was around Rs 60,000 crore. With only four months of FY25 left, it would be difficult for states to draw down the balance of Rs 90,000 crore fully by meeting conditionalities linked to reforms or projects, aimed at improving the quality of spending, the official said.
While it will be difficult to infer the size of the likely shortfall in utilisation by states in FY25, they lost out about Rs 45,000 crore in FY24 as they were able to utilise Rs 1.05 lakh crore against the budget estimate of Rs 1.5 lakh crore for capex loans.
“The Centre’s Rs 11.11-lakh-crore capex target was an aspirational target that the government had put out. It also brought to the fore the issue of absorptive capacity both by the state governments and the government of India,” another official said.
The markets would be closely watching the revised budget estimate for FY25 as actuals have broadly matched with it in recent years, reflecting realistic budget making.
The Centre’s capex contracted by nearly 15% on year at Rs 4.7 lakh crore in April-October 2024, underscoring the struggle to accelerate the pace.
The Centre’s capex has grown by 30% on an average between FY22 and FY24, as the government has adopted a capex-led growth strategy. So, beyond a point, the agencies could not be overstretched, the second official said, pointing to capacity issues.
To meet the FY25 budget estimate, the Centre needs to incur a capex of about Rs 1.3 lakh crore per month during November-March FY25, which entails a daunting annual expansion of about 61%. “We are apprehensive that the capex target of Rs 11.1 trillion for FY25 will now be missed by a margin of at least Rs 1 lakh crore,” Icra’s chief economist Aditi Nayar said. “This nevertheless entails a considerable y-o-y growth in H2FY25, which would support the GDP expansion in the second half of the year,” she added.
The anticipated miss in the capex target is expected to offset any shortfall on account of disinvestment and taxes. Accordingly, Icra expects the fiscal deficit to mildly trail the FY25 budget estimate of Rs 16.1 trillion or 4.9% of GDP.
Source: The Financial Express
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