Govt capex dips 30% in Aug, but still ahead of FY27 budget target

Central govt capex fell 30% YoY in Aug 2026 but rose 18% in the Apr-Aug period, staying ahead of budget estimates. A Jefferies report says 12% YoY growth is needed for the rest of FY27 to meet the target, with defence spending strong.

Central government capital expenditure declined 30 per cent year-on-year in August 2026, but remains ahead of the budget trajectory on a year-to-date basis, with a 12 per cent annual growth in the remaining months needed to meet the FY27 budget estimate, Jefferies said in a report.

Central government capex rose 18 per cent year-on-year in the April-August period, compared with the budget estimate of a 14 per cent increase for FY27. This follows a 43 per cent year-on-year increase in capex during the same period of FY26, although full-year growth eventually moderated to 2 per cent, the brokerage said.

Jefferies' Analysis and Areas to Watch

Jefferies said it is tracking capex excluding telecom and the Department of Economic Affairs (DEA), which rose 19 per cent year-on-year in the first five months of FY27 against a budgeted 15 per cent increase. "YTD capex is tracking higher in road, rail, defence and transfer to states. 12% YoY growth is needed for the rest of FY27 to meet BE,” Jefferies said, pointing to the pace of spending required in the remaining months of the fiscal year. The brokerage flagged the utilisation of the DEA allocation as an area to watch. The FY27 budget has set aside Rs 163 billion for DEA spending, 77 per cent lower than the Rs 466 billion budget estimate for FY26. “FY26 DEA was revised higher by 52% YoY to Rs708 bn in revised estimate (RE) and only 48% of that was utilized”, it said.

Sector-Wise Capex Breakdown

Road and Rail Spending

Sector-wise, road and rail spending showed weakness in August. Road capex declined 77 per cent year-on-year and rail capex fell 4 per cent during the month. However, their year-to-date spending remained higher, with rail capex up 23 per cent and road capex up 2 per cent year-on-year. “41-49% of FY27 BE road & rail capex is achieved till date,” the report added.

Defence and Power Capex

Defence remained a stronger area, with capex rising 26 per cent year-on-year in August and 38 per cent year-on-year on a year-to-date basis, well ahead of the 18 per cent growth targeted in the FY27 budget. About 31 per cent of the budgeted defence capex had been achieved by August. "Defence and power standout on capex visibility," Jefferies said, highlighting continued execution opportunities in the sectors. It expects strong power capex to support earnings growth in some industrial companies, while order-book execution is expected to drive operating leverage in others.

Transfers to States

The brokerage also noted that budgetary transfers to states rose 59 per cent year-on-year in the first five months of FY27, although state-level capex growth is tracking below budget expectations in several key states. (ANI)

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