Budget 2025 may keep capex target largely unchanged: MC Poll

Capex should be priority area for the government, say economists

Rapid government capex expansion may not be on the cards this Budget, as the government targets Rs 11.2 lakh crore capex in 2025-26, as much as it projected in the previous fiscal, according to a poll of 15 economists conducted by Moneycontrol.

“While we expect the central government to budget capex growth of 10 percent in FY26, it is unlikely to match the stellar growth seen between FY21-FY24. In the last budget presentation, the economic affairs secretary highlighted that Central government capex has peaked at 3.3 percent of GDP,” said Anubhuti Sahay, head, India Economic Research, Standard Chartered Bank.

The Rs 11.2 lakh crore number will peg the capex ratio to 3.1 percent of the GDP. The MC poll projected nominal growth to average 10.5 percent, as much as the government projected in the previous fiscal.

The government had pegged Rs 11.1 lakh crore capex target for the current fiscal, up 17 percent from the previous fiscal. But is likely to fall short of the target.

In the first eight months of the year, capex spending lagged the previous year’s spending by 12 percentage points. The government was not able to utilise even half of the capex target of Rs 11.1 lakh crore.

The MC poll forecasts ranged from a low of Rs 10.7 lakh crore to high of Rs 12.2 lakh crore.

“Investments need to remain the priority area rather than fiscal consolidation,” said Indranil Pan, chief economist, Yes Bank.

Furthermore, nine of the 11 economists who responded to queries regarding priority area for the government cited capex as one, followed by employment and consumption.

Data released earlier this month showed that gross fixed capital formation, a proxy for capex investments in the economy, likely slowed to a four-year low of 6.4 percent in 2024-25 compared with 9 percent in the previous fiscal.

Nearly all economists in the MC poll agreed on a need to push manufacturing, but opinion was divided on expanding production-linked incentive schemes to other sectors.

Six of the 11 economists noted no need to expand the PLI scheme. Those that did, highlighted that support was needed in labour-intensive sectors like leather, footwear and areas that can support MSMEs.

Economists rather pointed to the need to improve spending on the employment-linked incentive schemes announced by the government in the 2024-25 Budget.

They also noted that the government may opt for more support for rural areas and programmes focused on housing.

“The traditional direction that the previous budgets had been taking will continue – the poor, women and self-help groups will remain in focus. However, we do not think that there would be any major increases in allocations for these social sector initiatives,” Pan said.