Government Capex-to-GDP Ratio Expected at 5% in FY26
India’s general government capital expenditure as a percentage of GDP is projected to remain around 5% in FY26, according to Emkay Research. This figure falls below the 5.1% estimated for FY25 and significantly lower than the FY24 peak of 5.4%.
Key Takeaways
- General government capex/GDP projected at 5% for FY26
- Centre’s capex shows strong 43% growth in first five months
- States’ capex growing at 14%, below 30% budget target
- Productive capital spending shows consistent improvement
Strong Public Capex Momentum
Public capital expenditure growth has remained robust during the initial five months of FY26. The Centre has already utilized approximately 39% of its budgeted capital outlay, recording an impressive growth of over 43% year-on-year.
The report stated: “if the trend sustains, FY26 general government capex/GDP is likely to hit approx. 5 per cent, although it may still fall short of that in FY25P (5.1 per cent) and log much lower than the FY24 peak of 5.4 per cent”.
States Show Healthy Progress
State governments have demonstrated healthy momentum with their capital expenditure tracking 14% growth. However, this performance remains below their ambitious budget estimate of 30% growth for the fiscal year.
Despite challenges including slower revenue growth and sustained welfare spending, states have achieved approximately 89% of their budgeted capex in the last two fiscal years. This exceeds the 10-year average of around 80%, indicating improved execution capabilities.
Core Capex Shows Solid Growth
While base effects and sectoral anomalies have inflated the Centre’s overall capex figures, the noise-adjusted “core capex” has demonstrated solid growth over the past three quarters. This suggests consistent improvement in productive capital spending that drives economic growth.
Future Projections
For states, the capex-to-GDP ratio is expected to improve marginally by 0.1 percentage point to reach 2.4% in FY26. This would represent the second-highest level since FY17, though still falling short of their ambitious FY26 budget estimate of 2.7%.
The Centre’s effective disbursement of capex loans to states has been crucial in maintaining this investment momentum. The continued focus on capital spending by both central and state governments signals positive prospects for overall investment and economic expansion.
