Public Capital Expenditure Declines in July as Key Government Agencies Report 23% Year-over-Year Drop

Capital expenditure by major central public sector enterprises (CPSEs) and four key government bodies saw a significant decline of 23% year-on-year in July, totaling Rs 53,406 crore. This drop is partially attributed to a high base effect from the previous year. Despite this setback, experts emphasize the importance of public capital expenditure for the nation’s economic growth, especially in light of external challenges such as the recent announcement of a 50% additional tariff on India by the United States, which could hinder domestic private investments.

Current Trends in Capital Expenditure

The capital expenditure by CPSEs and four major government agencies, which include the Railway Board, National Highways Authority of India (NHAI), Delhi Metro Rail Corporation, and Damodar Valley Corporation, increased by 2.5% from April to July, reaching Rs 2.21 lakh crore. This growth was primarily driven by a 15% increase in the June quarter. Last year, capital expenditure surged due to pent-up demand following a slowdown caused by administrative delays related to the upcoming 2024 general elections. The central government has ramped up its capital investments this fiscal year, with a notable 52% increase in the June quarter, amounting to Rs 2.75 lakh crore, albeit from a lower base.

Impact of External Factors on Investment

The finance ministry is closely monitoring capital expenditure across various departments and CPSEs, recognizing its critical role in sustaining economic momentum. This oversight is particularly crucial as private sector planned capital expenditure is projected to decline from Rs 6.6 lakh crore in 2024-25 to Rs 4.9 lakh crore this fiscal year, according to the Forward-Looking Survey on Private Sector Capex Investment. The recent announcement of additional tariffs by the US has prompted various agencies to revise their growth forecasts downward, with some predicting a reduction of 30-80 basis points due to the increased duty burden.

Leading Contributors to Capital Expenditure

From April to July, the Railway Board emerged as the top spender, allocating Rs 79,152 crore, followed by NHAI with Rs 45,683 crore. Major contributors among CPSEs included ONGC, which spent Rs 11,155 crore, Indian Oil Corporation at Rs 10,733 crore, and NTPC at Rs 11,782 crore. Other significant spenders were PowerGrid Corporation, BPCL, and Coal India, with expenditures of Rs 9,045 crore, Rs 4,806 crore, and Rs 4,702 crore, respectively. These organizations have set a combined capital expenditure target of Rs 7.85 lakh crore for 2025-26, which is approximately 3% lower than the actual expenditure of Rs 8.07 lakh crore in the previous fiscal year.

Future Economic Outlook

The International Monetary Fund (IMF) has projected India to be the world’s fastest-growing major economy over the next two years, forecasting growth rates of 6.2% for FY26 and 6.3% for FY27, significantly surpassing global averages. However, the recent tariff announcements from the US have raised concerns, leading to downward revisions in growth forecasts by various agencies. The potential impact of these tariffs could pose challenges for India’s economic trajectory, emphasizing the need for robust public investment to counterbalance the effects on private sector spending.

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