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, compared to 2.7% of GDP in the previous year, indicating a strong push in the first part of the 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. These sectors have remained key drivers of public investment during the year. On the state government side, capex has remained range-bound, with state-level capital spending growing at an average rate of 13% year-on-year. Capital spending by central public sector enterprises (CPSEs) has also shown healthy momentum, with CPSE capex reaching 64% of its target for the first nine months of the fiscal year, 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 supportive factors such as fiscal and monetary stimulus improving consumption growth and a step-up in policy action to address structural challenges.
