Government Faces Capex Challenge Amid Election Year Constraints

The Indian government's capital expenditure for FY25 is likely to fall short, as highlighted by a Motilal Oswal report. Despite a budget of Rs 11.1 trillion, only 39.1% has been spent in the first half of the fiscal year, primarily due to election-related restrictions impacting spending on new projects.

A report from Motilal Oswal has indicated that the Indian government may not meet its capital expenditure target for the financial year 2025. Despite a planned budget of Rs 11.1 trillion, capital spending has decreased by 13.5% year-on-year in the first half of the fiscal year.

This shortfall is largely attributed to the Lok Sabha elections, which enforced a model code of conduct, limiting government expenditure on new projects and focusing instead on older commitments. In the first six months, the government managed to achieve only 39.1% of its capital expenditure goal, prompting concerns about the feasibility of meeting the annual target.

The Motilal Oswal report highlights a mixed quarterly performance, with a notable 14.6% year-on-year increase in capital expenditure during the second quarter of FY25, compared to a sharp 35.4% contraction in the first quarter. To meet the yearly target, an ambitious 50.5% growth in spending is required in the latter half of the fiscal year, posing a significant challenge. The report further notes the lowest capex in a decade barring the COVID-19-affected FY21.

(With inputs from agencies.)