India’s Capex Falls 23.4% in Q3 Amid Adjustment in Government Spending: ICRA

New Delhi- India’s capital expenditure declined sharply by 23.4 per cent year-on-year in the third quarter of FY2025–26, largely due to a moderation in central government spending, according to a report released on Sunday by ICRA.

The report noted that this slowdown in government expenditure is likely to marginally soften the pace of economic growth during the quarter. However, overall economic activity remained supported by robust festive demand and a pickup in capital spending by state governments.

In contrast to the Centre, state governments displayed stronger momentum. Data from 24 states showed that their combined capital outlay and net lending increased by 21.9 per cent in Q3, reversing the contraction recorded in the previous quarter. In absolute terms, state capex rose to ?2.1 trillion in Q3 from ?1.8 trillion in Q2, nearly matching the Centre’s capital spending during the quarter.

When taken together, total capital expenditure by the Centre and states stood at ?4.2 trillion in Q3 FY2025–26, slightly lower than ?4.4 trillion recorded in the corresponding quarter of the previous year. This marked a phase of normalisation after the strong 16.7 per cent growth seen in Q2.

ICRA has projected that India’s GDP growth could moderate to 7.2 per cent in Q3 FY2025–26, compared to 8.2 per cent in the preceding quarter. Despite the easing, growth is expected to remain above the 7 per cent mark, aided by healthy festive consumption and gains from GST rationalisation.

Commenting on the outlook, Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA, said that estimating GDP growth under the revised base year continues to be challenging. She attributed the sequential slowdown to factors such as an unfavourable base effect, reduced government capital spending, muted state revenue expenditure, and weak merchandise exports.

On the revenue expenditure front, the contraction in the Centre’s non-interest spending narrowed significantly to 3.5 per cent year-on-year in Q3, compared with a steeper 11.2 per cent decline in Q2. Meanwhile, the combined non-interest revenue expenditure of the 24 states rose by 2.7 per cent, though at a slower pace than in the previous quarter.

Overall, non-interest revenue spending by the Centre and states together registered a marginal increase of 0.3 per cent in Q3, compared to a slight contraction in Q2.

With inputs from IANS