Central Govt Capex Falls 30% YoY in August; 12% Growth Needed to Hit Target
Jefferies reports a 30% YoY drop in central government capex for August 2026, noting a 12% growth rate is required to meet FY27 budget targets.
The central government's capital expenditure (capex) witnessed a significant dip in August 2026, falling by 30 per cent compared to the same period last year. According to a recent report by brokerage firm Jefferies, while the monthly figure showed a sharp decline, the year-to-date spending remains ahead of the planned budget trajectory.
To ensure the government meets its full-year budget estimates for FY27, Jefferies suggests that an annual growth rate of 12 per cent must be maintained throughout the remaining months of the fiscal year.
Year-to-Date Performance vs. Budget Estimates
Despite the August slump, the broader picture for the financial year remains relatively positive. In the April-August period of FY27, central government capex rose by 18 per cent year-on-year. This outperforms the initial budget estimate, which had projected a 14 per cent increase for the same period.
This current momentum follows a period of high volatility. During the same period in FY26, capex had surged by 43 per cent, though the full-year growth eventually slowed down to just 2 per cent. When excluding the telecom sector and the Department of Economic Affairs (DEA), spending rose 19 per cent in the first five months of FY27, exceeding the budgeted 15 per cent increase.
Sectoral Breakdown: Winners and Losers
The August data revealed a stark contrast between different infrastructure and security sectors:
- Road and Rail: These sectors showed notable weakness in August. Road capex plummeted by 77 per cent year-on-year, while rail capex saw a 4 per cent decline. However, looking at the year-to-date figures, rail spending is up 23 per cent and road spending is up 2 per cent. Currently, between 41 per cent and 49 per cent of the total budgeted capex for road and rail has been achieved.
- Defence: This remains a high-performing sector. Defence capex rose by 26 per cent year-on-year in August and has surged by 38 per cent on a year-to-date basis. This is significantly higher than the 18 per cent growth targeted in the FY27 budget, with 31 per cent of the total budgeted defence capex already achieved.
- Power: Along with defence, the power sector stands out for its high capex visibility, which is expected to support earnings growth for various industrial companies.
Areas of Concern: DEA and State Transfers
Jefferies highlighted the Department of Economic Affairs (DEA) allocation as a critical area to monitor. The FY27 budget allocated Rs 163 billion for DEA spending, a massive drop from the Rs 466 billion budgeted for FY26. The report noted that in FY26, the DEA allocation was revised higher to Rs 708 billion, yet only 48 per cent of that amount was actually utilised.
Additionally, while budgetary transfers to states saw a robust 59 per cent year-on-year increase in the first five months of FY27, the actual capex growth at the state level is currently tracking below the expectations set by the budget in several key states.