India Govt Capex Set for H2 Slowdown; Infrastructure Spending Dominates
Overview
Morgan Stanley forecasts a slowdown in India's central government capital expenditure for the latter half of FY26. Spending was heavily front-loaded in the first half, with infrastructure projects like roads and railways receiving the largest share. Despite this anticipated moderation, private capex shows signs of improvement.
Government Capex Moderation Ahead
The central government's capital expenditure is projected to decelerate through the remainder of fiscal year 2026. Morgan Stanley's analysis indicates that a significant portion of the annual capex budget has already been deployed in the first half of FY26. This front-loading suggests a more measured pace of spending in the coming months.
Infrastructure Push Continues
For FYTD26 (April-November), the government deployed ₹6.6 lakh crore in capital expenditure, representing 58.7% of the full-year budget. This constituted 3.4% of GDP, a notable increase from 2.7% of GDP in the same period last year. The bulk of this spending, approximately 55%, has been channeled into critical infrastructure sectors, primarily roads and railways. These areas remain central to the government's public investment strategy.
Mixed Spending Picture
While central government capex is expected to cool, state government spending has remained relatively stable, hovering around 1.7% of GDP. However, capital spending by central public sector enterprises (CPSEs) has demonstrated robust growth, reaching 64% of their FYTD26 target with a 14% year-on-year increase, driven by entities like Indian Railways and NHAI. This healthy CPSE momentum is anticipated to continue.
Private Capex Outlook Brightens
The report also points to an improving outlook for private capital expenditure. A confluence of supportive factors, including fiscal and monetary stimulus boosting consumption, and policy actions addressing structural economic challenges, are expected to foster private investment growth.
