Boosting Confidence: A 10-12% Capex Surge Needed in Union Budget 2025-26

A report from Jefferies advocates for a 10-12% increase in capital expenditure in the Union Budget 2025-26 to sustain economic momentum and infrastructure development. Despite a past capex growth, the report highlights challenges due to election years and projects significant growth in the domestic defense sector.

The Union Budget for 2025-26 needs a 10-12% hike in capital expenditure (capex) to bolster infrastructure initiatives and restore stakeholder confidence, according to Jefferies' recent report. The analysis accentuates the necessity of continued capex growth to uphold economic momentum, especially during transitional periods post-elections.

The report underlines the importance of a 10-12% year-on-year capex growth in February's budget, ensuring the capex-to-GDP ratio is sustained. The FY26 budget will be scrutinized for indications of double-digit capex expansion, following the FY25 budget's significant 16% YoY capex increase, despite electoral impacts.

Despite the maintained focus on infrastructure, the first seven months of FY25 saw a 15% YoY decline in government capex. Achieving even a moderate 5% growth for the fiscal year mandates a 32% increase in spending between November 2024 and March 2025 due to slow capex execution, attributed largely to election year stabilization challenges.

In defense spending, the report forecasts a steady 7-8% compound annual growth rate from FY24 to FY30, aligned with historical trends. Growth drivers include domestic production, import substitution, and exports, projecting a USD 100-120 billion opportunity in the domestic sector within five to six years.

(With inputs from agencies.)