Govt has scope to increase capital expenditure this fiscal, says ICRA

Business Standard

2 days ago

The government has the scope to increase total expenditure by ₹0.8 trillion, given the fiscal buffers and the upward revision in the FY2025 nominal GDP number, which bodes well for the deficit and debt-to-GDP targets for FY2026, a report by ICRA said on Tuesday.
'If this entire amount (₹0.8 trillion) goes for additional capex, it would push up the headline figure to nearly ₹12.0 trillion and take its growth to a healthy 14.2 per cent from 6.6 per cent currently.'
Capital expenditure for April 2025 surged by 61 per cent year-on-year to ₹1.6 trillion, according to the latest data by the Controller General of Accounts. This was 14.3 per cent of the FY2026 Budget Estimate (BE), as against 9.4 per cent of FY2025 provisional estimates.
ICRA said that this was well above the average monthly required rate of ₹0.9 trillion for the fiscal.
'This implies that capex needs to grow by a mere 0.9 per cent in the remaining 11 months of the fiscal to meet the FY2026 BE of ₹11.2 trillion,' it added.
The report noted that the additional cushion on the receipts side—on account of the higher-than-budgeted RBI dividend transfer—provides comfort on the fiscal front amidst heightened global uncertainties. The dividend pay-out, ICRA said, could provide room to push capex above the target of ₹11.2 trillion in FY2026.
'The fiscal deficit-to-GDP ratio can be contained at 4.4 per cent in FY2026, while also accommodating a marginal fiscal slippage to the tune of ₹300–350 billion, given the larger base,' the ICRA report said.
The CGA data also showed miscellaneous capital receipts for April 2025 amounting to ₹214.1 billion, which is 46 per cent of the FY2026 budget estimate of ₹470 billion.
'This gives us confidence that the target for the fiscal is unlikely to be missed. This provides some relief, given that a shortfall in miscellaneous capital receipts has been a recurring phenomenon,' the report said.
The government's revenue receipts increased by 21 per cent to ₹2.6 trillion (7.5 per cent of FY2026 BE) in April 2025 from ₹2.1 trillion in the corresponding month last year.
'Compression in revenue deficit and healthy non-debt capital inflows contained the fiscal deficit at ₹1.9 trillion in April 2025, despite the surge in capex,' ICRA said.
With the capex overshooting the FY2025 Revised Estimate (RE), the embedded growth in the same for FY2026 is now pegged at 6.6 per cent, lower than the 10 per cent seen in the Budget.