Central government capital expenditure is expected to slow in the second half of FY26, as a significant portion of spending was concentrated in the first half, according to a report by Morgan Stanley. This front-loading of spending may result in a softer pace of expenditure in the coming months, from a cyclical perspective. The report predicts a slowdown in central government capex for the remainder of the fiscal year, given the initial surge in spending. By the end of November, central government capex had already reached 58.7% of the annual budgeted target, translating to 3.4% of GDP, a notable increase from the previous year's 2.7%. This strong push in the first half has set the stage for a potential slowdown in the second half. The government's budget for FY2025-26 allocated a substantial Rs 11.21 lakh crore for capital expenditure, with a significant portion directed towards roads and railways, reflecting the government's focus on infrastructure and connectivity. State government capex has remained steady, at around 1.7% of GDP, but has shown a healthy year-on-year growth of 13%. Central public sector enterprises (CPSEs) have also demonstrated strong momentum, with capex reaching 64% of its target by the end of November, driven by the Indian Railways and the National Highways Authority of India (NHAI). Despite the expected slowdown in central government capex, the report highlights an improving outlook for private capex, supported by fiscal and monetary measures, as well as policy actions addressing structural challenges.
