General government capital expenditure (capex) as a share of GDP is expected to stay robust at around 5 per cent in FY26, though slightly lower than 5.1 per cent in FY25 (provisional) and well below the FY24 high of 5.4 per cent, according to a report by Emkay Research.
Public capex has maintained strong momentum in the first five months of FY26, with the Centre already utilising 39 per cent of its budgeted capital outlay, marking a growth of over 43 per cent year-on-year. If this trend sustains, Emkay expects capex spending to remain elevated, reinforcing the role of public investment as a key growth driver.
The report said that while headline capex numbers were partly boosted by base effects and sectoral anomalies, the “core capex”—adjusted for such distortions—has also recorded solid growth over the past three quarters, signalling sustained improvement in productive infrastructure spending.
States have also contributed to the capex push, clocking 14 per cent growth so far in FY26, though this trails their ambitious 30 per cent growth target set in state budgets. Despite fiscal constraints, states have delivered strongly over the past two years, achieving around 89 per cent of their budgeted capex, significantly higher than the 10-year average of 80 per cent.
This spending momentum has held up despite challenges such as slower revenue growth and persistently high revenue expenditure on welfare schemes. Emkay attributes part of this resilience to the Centre’s timely release of interest-free capex loans to states, which has provided critical funding support.
The report estimates that the states’ capex-to-GDP ratio could rise marginally by 0.1 percentage point to 2.4 per cent in FY26, the second-highest level since FY17, but still below their FY26 target of 2.7 per cent. Overall, combined government capital expenditure is expected to remain a key pillar of economic momentum even as fiscal consolidation progresses. |
