Budget 2025: Government Gets Out of Capex Race

With Capex growth stalling in Budget 2025, questions are raised about the future of government's investment plans.

Capex growth has stalled in budget 2025-26.

(Photo: PTI)

Budget 2025-26 has allocated Rs 11.21 lakh crore for capital expenditure (Capex), a growth of 0.9 percent on Budget 2024-25 Capex of Rs 11.11 lakh crore, and 10.1 percent on the revised 2024-25 Capex of Rs 10.18 lakh crore.

The 2024-25 Capex has been revised down by about Rs 1 lakh crore. This reflects the reality of stalling Capex in nine months of 2024-25. Until December 2024, the actual Capex was Rs 6.85 lakh crore (61.6 percent of budgeted Capex) and, on year-on-year basis, only 1.74 percent higher than the nine-month 2023-24 Capex of Rs 6.74 lakh crore.

After many years of speaking eloquently about Capex in every Budget, and making it the principal policy and investment pivot and growth driver strategy of the government, Finance Minister Nirmala Sitharaman did not even mention the Capex outlay of 2025-26 in her Budget speech.

Why has the government gone silent on the Capex? Has the government Capex growth engine sputtered? Is the government laying the Capex story to rest?

2024-25 Capex Sputtered Significantly

The 2024-25 Capex story has been less than stimulating. In the first quarter, the Capex at Rs 1.81 lakh crore was 35 percent lower than that of 2023-24 Capex. In the second quarter, the Capex improved, but the first half-year Capex was still 15.42 percent below the first half-year Capex of 2023-24.

The government did pump in large Capex funds in the third quarter (Rs 2.7 lakh crore) to bring the nine-month Capex growth into the positive territory. A good part of this fund push took place in two sectors – road and loans to states, which unfortunately did not lead to the real Capex.

Of Rs 2.72 lakh crore in Budget 2024-25 for the road sector, the government pumped in Rs 92,131 crore in the third quarter only taking the road sector Capex to Rs 2.33 lakh crore, achieving a budgetary utilisation rate of 85.5 percent, which is very impressively optically.

Did this fund push lead to more road construction? No.

As reported in the newspapers, NHAI pre-paid its loans of Rs 56,000 crore (out of outstanding loans of Rs 3.35 lakh crore) in the third quarter using government Capex funds. The capital expenditure takes place when you construct more roads not when you repay the loans.

From Budget 2024-25 provision of Rs 1.92 lakh crore for loans and advances, by the end of November (in eight months), the government could only disburse Rs 86,387 crore only, which was 44.9 percent of the budgeted Capex. In December 2024, the government released Rs 36,129 crore and also relaxed many conditions attached to such loans. All evidence tells that a good deal of Capex loans released to the states are lying unutilised with the states.

If you exclude road Capex used for repayment of NHAI loans and unutilised loans and advances lying with the states, the actual Capex of Rs 6.85 lakh crore in nine months would be about Rs 1 lakh crore less, falling much lower than the 2023-24 Capex during the same period.

Unspent Bad and Lumpsum Capex Contributed To Drastic Revision in Capex Budget

The government had budgeted Rs 84,496 crore for telecommunication Capex — Rs 82,916 crore of which was for equity capital infusion in BSNL for cleaning up accumulated losses and to provide funds for the 5G licence fee amount.

While this Capex was, in itself a bad Capex as big stimulus packages for BSNL and MTNL in the last few years (about Rs 3 lakh crore), have not stopped steep erosion in their subscribers base, no serious bidders turned up for the tenders floated for building 5G network for BSNL. There was no likelihood of this Capex being incurred during the year.   

The government had kept an unusually large Capex budget of Rs 66,197 crore, including a lumpsum budget of Rs 62,593 crore for ‘new schemes’ under the Department of Economic Affairs (DEA). Except for infusing Rs 11,000 crore equity in the loss-making Rashtriya Ispat Nigam Limited (RINL) Vizag, the government could not come up with any new Capex idea/scheme during the year.

It was, therefore, not surprising that the government quietly reduced the 2024-25 (revised) Capex to Rs 10.18 lakh crore, which is barely Rs 69,000 crore higher than the 2023-24 actual Capex, reflecting merely a 7.3 percent increase. The year 2024-25 is still not fully out. Actual 2024-25 Capex might not even go up to Rs 10.18 lakh crore and be much smaller if you exclude suspect repayment Capex.

The high-flying Capex-led growth story seems to be getting over.

Capex in 2025-26 Budget

Capex allocation in Budget 2025-26 hardly has any new dimension to it or any qualitative improvement.

Roads and railways Capex, always the big Capex spenders, have been provided with allocations which are surprisingly exactly equal to the budget provided in 2024-25BE. Roads Capex is exactly the same as Rs 2,72,241.15 crore and railways Capex is exactly the same as Rs 2,52,000 crore. The government seems not to have bothered to make even a rupee change in their Capex allocations.

There is an overall increase of Rs 10,000 crore in the Capex 2025-26. In addition, there is a reduced allocation of Rs 32,712 crore in the case of the Department of Telecommunications, and Rs 19,584 crore in the case of DEA, in all, totally Rs 62,295 crore of new Capex compared to the last year.

Of this, additional Rs 8,000 crore have been allocated for defence outlays, Rs 10,000 crore for metro projects, Rs 20,000 crore for a new Research, Development and Innovation (RDI) Scheme under the Department of Science and Technology, and about Rs 8,000 crore for transfers to states against externally aided loans (EAPs). Rest has been distributed in small bits and pieces.

It is highly unlikely that RDI scheme would get rolled out in 2025-26. There is nothing innovative or higher qualitative differentiation in other allocations.

Capex Story Has Run Out of Steam

Massive under-performance in Capex 2024-25, a very small increase in Capex 2025-26, and complete absence of any new idea about Capex, besides the total absence of its mention in the Finance Minister’s Budget speech, suggests that the Capex-based growth story has run out of steam.

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including The $10 Trillion Dream Dented, We Also Make Policy, and Explanation and Commentary on Budget 2024-25. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)