New Delhi, Feb 22 (LatestNewsX) India’s capital expenditure saw a year-on-year contraction of 23.4 per cent in the third quarter of FY2025-26, a new report said on Sunday.
The moderation in government spending is expected to slightly temper economic growth momentum during the quarter, although overall activity remains supported by festive demand and state-level capex expansion, data compiled by ICRA showed.
However, state governments showed improved momentum. Data available for 24 states showed that their combined capital outlay and net lending rose by 21.9 per cent in Q3, reversing a contraction seen in the previous quarter.
In absolute terms, the capex of these states increased to Rs 2.1 trillion in Q3 from Rs 1.8 trillion in Q2, almost matching the Centre’s capital spending level, the report stated.
Overall, when combined, Central and state capital expenditure stood at Rs 4.2 trillion in Q3 FY2025-26, slightly lower than Rs 4.4 trillion in the same quarter last year.
This compares with a strong 16.7 per cent growth recorded in Q2 — indicating a phase of normalisation after earlier momentum.
ICRA has projected that India’s GDP growth may ease to 7.2 per cent in Q3 FY2025-26, compared to 8.2 per cent in the previous quarter.
Despite the moderation, growth is expected to remain above 7 per cent, supported by healthy festive demand and benefits from GST rationalisation.
Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA, said estimating GDP growth under the new base year remains challenging.
“The reasons for the estimated sequential slowdown include an unfavourable base effect, contraction in Government capital spending, subdued state government revenue expenditure, and weak merchandise exports,” Nayar added.
On the revenue side, the pace of contraction in the Centre’s non-interest revenue expenditure narrowed significantly.
It declined by 3.5 per cent year-on-year in Q3, compared to a sharper 11.2 per cent contraction in Q2.
Meanwhile, the combined non-interest revenue expenditure of 24 states grew by 2.7 per cent, although at a slower pace than the previous quarter.
Taken together, the Centre and states recorded a marginal 0.3 per cent increase in non-interest revenue spending in Q3, compared to a slight decline in Q2.
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