A stark 23.4% YoY contraction in India’s capex defined Q3 FY25-26, driven by central government’s expenditure recalibration, ICRA reported. This fiscal tightening arrives after Q2’s vigorous 16.7% uptick, with combined spends at 4.2 lakh crore rupees versus 4.4 lakh crore last year.
While central cuts pose risks to momentum, states delivered upliftment. Across 24 states, capex plus net lending leaped 21.9%, pushing totals from 1.8 to 2.1 lakh crore—on par with Union levels and reversing prior softness.
Growth projections reflect caution: GDP at 7.2% from 8.2%, propped by festive surges and GST tailwinds. ‘New base year complicates forecasts,’ noted ICRA’s Aditi Nair. Culprits include base impacts, capex slowdowns, state revenue lags, and muted exports.
Revenue dynamics brightened. Central non-interest outgo eased to -3.5% YoY from -11.2%; states advanced 2.7%. Aggregate non-interest revenue spending ticked up 0.3%, contrasting Q2 contraction.
This quarterly snapshot reveals fiscal federalism in action—states compensating central restraint. Yet, as infrastructure ambitions loom large, restoring capex vigor will be pivotal. Festive resilience and reform dividends offer breathing room, but sustained investment is key to India’s 7%+ growth pledge.