Assessment of the Rise in Union Government’s Capital Expenditure
The reported 43% increase in the Union government's capital expenditure (capex) to ₹4.31 trillion in April-August 2025, compared to ₹3 trillion in the same period of 2024, has been welcomed positively. This uptick is seen as a mechanism to sustain and enhance economic growth, especially as the private sector hesitates to invest in new projects. Despite the optimism, a deeper analysis shows mixed outcomes.
Components of Capital Expenditure
- Capital Support: Equity infusion to central ministries and state-owned enterprises.
- Loans and Advances: Comprises 20% of total capex in 2025-26, up from 18% in 2024-25 and 9.9% in 2021-22.
Reasons for Increased Share of Loans and Advances
Two main reasons are identified for the rise in loans and advances:
- Facilitating capital outlay with funds released as loans.
- Encouraging states to implement promised reforms, leading to infrastructure development.
Capital Expenditure Analysis
In the first five months of 2025-26, capex through loans and advances increased by 175% to ₹1.09 trillion. The transfer of capex to states saw a 78% rise. Excluding loans and advances, capex rose by 23%.
Sectoral Contribution
- Telecommunications: Capex increased to ₹17,853 crore.
- Defence, Police, North-East Development, Space, Science and Technology: These sectors also received higher capex.
- Railways: Saw an 8% increase to ₹1.1 trillion.
- Roads and Highways: Increased by 11% to ₹1.17 trillion.
- Housing and Urban Sector: Declined by over 4% to ₹9,781 crore.
- Atomic Energy: Dropped by over 6%.
- Food and Public Distribution: Capex rose to ₹50,000 crore from ₹335 crore, accounting for over a third of the total capex rise.
Implications
While the increase in capex is substantial, the quality and distribution among sectors raise questions about its effectiveness in fostering growth. The significant rise in capex for food and public distribution, involving advances to the Food Corporation of India, suggests a focus on stabilizing food procurement without bank borrowing, but it also prompts scrutiny over the composition of capital spending.