Central govt capex likely to slow in rest of FY26 as spending front-loaded in first half: Morgan Stanley

New Delhi [India], January 13 : The central government's capital expenditure (capex) is expected to slow in the remaining part of FY26 as a large part of the spending was front-loaded in the first half of the fiscal year, highlighted a report by Morgan Stanley.

From a cyclical perspective, the report noted that a substantial portion of the annual allocation has already been utilised, which may result in a softer pace of expenditure in the coming months.

It stated "we anticipate a slowdown in central government capex for the remaining part of FY26, given capex spending was front-end loaded in F1H26".

According to the report, central government capex touched Rs 6.6 lakh crore (trillion) in FYTD26 (April-November), which is around 58.7 per cent of the budgeted target for the full year. This translates to capex spending of 3.4 per cent of GDP, compared to 2.7 per cent of GDP in FYTD25, indicating a strong push in the first part of the fiscal year.

For Budget FY2025-26 (April 2025 - March 2026), the government budgeted a significant capital expenditure (capex) of Rs 11.21 lakh crore (Trillion)

The report added that around 55 per cent of the central government's capital spending has been directed towards roads and railways, reflecting continued focus on infrastructure creation and connectivity. These sectors have remained key drivers of public investment during the year.

On the state government side, Morgan Stanley noted that capex has remained range-bound. States' capex stands at around 1.7 per cent of GDP on a FYTD26 basis, similar to last year. However, state-level capital spending has been growing at an average rate of 13 per cent year-on-year, suggesting steady but contained expansion.

Capital spending by central public sector enterprises (CPSEs) has also shown healthy momentum. The report stated that CPSE capex reached 64 per cent of its FYTD26 (April-November) target, registering a growth of 14 per cent year-on-year.

This growth has been led by strong performance from Indian Railways and the National Highways Authority of India (NHAI). The report added that CPSE capex remains well-positioned to surpass last year's performance.

While central government capex may slow in the remaining months of FY26, the report highlighted an improving outlook for private capex. It cited several supportive factors, including fiscal and monetary stimulus improving consumption growth, a step-up in policy action to address structural challenges such as new labour codes.

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