The Centre will continue to support growth, keeping in view the ability of ministries and states to use up elevated outlays, they said.
The government aims to push the fiscal deficit below 4.5% of gross domestic product (GDP) in the next financial year from the budgeted 4.9% of GDP in FY25.
Precise allocations will be firmed up closer to the budget, typically presented at the start of February, one of the persons told ET.
The finance ministry wrapped up pre-budget consultations with various ministries and departments on November 11.
The government has sharply raised its capex outlay in the range of 17% to 39% annually since FY22.Banking on Private Investments
This was done using the high multiplier effect of such expenditure to nurse a Covid-hit economy back to health amid flagging private investments.
Given the limited space for further compression in revenue expenditure, the government would refrain from sharply raising its FY26 capex outlay from the budgeted level for this financial year, another person indicated. The Centre also expects private investments to strengthen further next fiscal, leaving it with leeway to cut the pace of capex hike without jeopardising growth. For a second straight year through FY25, actual capex could fall short of the target by more than Rs 50,000 crore.
“The idea is to remain firm on the stated consolidation road map without upsetting growth momentum,” said one of the people cited above. They said the Centre is also mindful that its gross market borrowing through dated securities would rise in FY26 from ?14 lakh crore this fiscal to accommodate a part of its repayment obligations against pandemic year loans.
Spending vs outlay
The actual capex this fiscal could be 90-95% of the record budgeted amount of Rs 11.11 lakh crore, senior officials have said, despite the finance ministry’s constant nudge on spending. This is partly due to the inability of states to fully utilise the Rs 1.5 lakh crore long-term interest-free loans pledged by the Centre to bolster their capex in FY25. In the last fiscal year, capex had hit 95% of the initial allocation of Rs 10 lakh crore.
Capex contracted 15.4% in the first half of this fiscal from a year before, compared with the annual target of a 17% increase, as project planning and executions got hit – first by the general elections in the June quarter and then by heavy monsoon rain.
Interestingly, key departments with large capex outlays, including railways and roads, have spent more than a half of their annual allocations. But others like telecommunications have faltered, although some improvement in spending is expected in the rest of the fiscal.
State projects worth just Rs 50,069 crore were approved in the first half of FY25, against the budgeted capex loan provision of Rs 1.5 lakh crore for the entire year.
For a second straight year, states are expected to fall significantly short of exhausting the budgeted amounts, especially that part of capex loans tied to specific reforms undertaken by them, said the people cited earlier.
As such, the substantial capex increase, year after year, is unsustainable – especially now that the base has widened so much – if the Centre is to reduce debt and fiscal deficit substantially, a senior official had told ET earlier.
Private investments have been picking up in certain sectors although a strong, broad-based resurgence is yet to fructify, said DK Pant, chief economist at India Ratings. “Government investments in infrastructure crowd in private investments in other sectors as well,” he added.
