New Delhi [India], January 2 (ANI): The government should increase capital expenditure (capex) by 10-12 per cent in the upcoming Union Budget 2025-26 to ensure that it maintains its focus on infrastructure development and instils confidence among stakeholders said a report by Jefferies.
The report emphasized that sustained capex growth is crucial for economic momentum, especially in a year of transition following elections.
It said “10-12 per cent YoY capex growth in Feb budget, based on broadly maintaining capex to GDP ratio, is needed for confidence that government capex focus continues”.
The FY26 Union Budget will be closely monitored for signs of double-digit capex growth. The report noted that the FY25 budget upheld a 16 per cent year-on-year (YoY) growth in government capex as projected in the interim budget, even after accounting for the election results.
It highlighted the need for a 10-12 per cent YoY growth in capex in the February budget, which would broadly maintain the capex-to-GDP ratio and demonstrate the government’s continued focus on infrastructure investment.
While overall capex, including that of public sector enterprises (PSEs), has shown a 16 per cent YoY increase compared to 13 per cent in the interim budget due to a 10 per cent upward revision in PSE spending, actual expenditures have been underwhelming.
The report stated government capex declined by 15 per cent YoY during the first seven months of FY25. To achieve even a modest 5 per cent growth for the fiscal year, a 32 per cent YoY increase in spending will be required between November 2024 and March 2025.
The report attributed the slow execution in capex to the election year, where ministries often take time to stabilize. It considered the current trend a temporary deviation rather than a sign of longer-term inefficiencies.
On the defence front, the report projected a 7-8 per cent compound annual growth rate (CAGR) in spending from FY24 to FY30, consistent with trends over the past decade.
The key drivers for growth in the defence sector include domestic manufacturing, import substitution, and exports, rather than substantial increases in government spending.
With current policies, the domestic defence sector presents an opportunity worth USD 100-120 billion over the next 5-6 years, implying a visible 13 per cent CAGR in the industry. If export opportunities materialize, this could rise to a 15 per cent CAGR, providing a significant boost to domestic companies. (ANI)
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