Capex Cycle Increases by 31%, crosses pre-pandemic levels

Capex cycle has improved with Central and states’ capital expenditure growing faster than the GDP rate

December 6, 2021

Despite pandemic-related spending and the concurrent revenue drop that caused higher fiscal deficits and debt levels, the central Capex increased by 31% over the last year

The budget targets an increase of 26% over the revised estimates of the last year

The states are expected to meet 80-85% of their Capex target

Capex spend on road transport and highways, railways, housing, telecommunication, and health was higher over H1 of 2020 and 2021

According to a report by analytics company CRISIL, the public capital expenditure or Capex cycle has improved with Central and states’ capital expenditure growing faster than the gross domestic product (GDP) rate, crossing FY20 levels. This also implies that the pandemic did not hamper the government much as the central Capex has already traversed the pre-pandemic trendline.

Despite pandemic-related spending and the concurrent revenue drop that caused higher fiscal deficits and debt levels, the central Capex increased by 31% over the last year. The budget targets an increase of 26% over the revised estimates of the last year, and if this trend continues, it will cross the 12% pre-pandemic trend level, indicating an overall central Capex YoY growth of 19% in the second half of the year. CRISIL also expects the states to meet 80-85% of their Capex target. It should be noted that the state Capex is usually 1.4 times higher than Central Capex, thus playing a major role in infrastructure building.

The CRISIL report also states that during April-October 2021, the Centre spent Rs 2.5 lakh crore or 46% of its budgeted target for the year. This was 26% higher than the spend of 2020. Alternatively, the Capex grew by 78% for Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, and Uttar Pradesh over April-September 2021. These 16 states account for 80% of state Capex but have spent 29% of their targets. It must be noted that states typically tend to spend most of their budgeted Capex towards the end of the year. Chhattisgarh, Kerala, MP, Punjab, Rajasthan, and Telangana achieved the Centre’s target of spending 45% of budget estimates by the first half. However, Maharashtra, Odisha, and Jharkhand spent lower than 20% of the budgeted Capex in H1.

Sector-wise, the Capex spend – specifically in road transport and highways, railways, housing, telecommunication, and health – was higher over H1 of 2020 and 2021. Rural development spend, which primarily focused on roads, housing, and other infrastructure, increased 14% over the pre-pandemic levels.