Delayed BSNL equity infusion, sluggish state transfers drag capex momentum

Transfers to states from Centre are down 20 per cent compared to last year in the April-October FY25 period

The slowdown in central capital expenditure (capex) can largely be attributed to underspending by the Department of Telecommunications (DoT) due to the pending equity infusion into Bharat Sanchar Nigam (BSNL), reduced transfers to states from the Centre, and underutilisation of funds held by the Department of Economic Affairs, according to data from the Controller General of Accounts.

 

Although below the spending levels of last year, the bulk of capex during the April-October period has been spent by the Ministry of Road Transport and Highways and the Ministry of Railways, with a combined allocation of Rs 5.24 trillion in 2024-25 (FY25).

 

Railways has spent 62 per cent, while the road ministry has exhausted 53 per cent of the budgeted capital outlay during the April-October period.

 

Transfers to states from the Centre are down 20 per cent compared to last year in the April-October FY25 period. Only 32 per cent of the Budget Estimates have been transferred during the April-October period, against 48 per cent in the corresponding period last year.

 

“The Centre does not transfer funds to states to promote capex but to promote its programmes and enable the states to take up those projects. There is a lot of resentment in Opposition states due to the conditionalities associated with these loans. Most states are not comfortable, so there is no great enthusiasm about these loans,” said former finance secretary Subhash Chandra Garg.

 

Experts said that the pending capital infusion into BSNL, for which the budget has allocated Rs 82,916 crore, could have increased the total capex utilisation by the telecom ministry. During the April-October FY25 period, DoT was able to utilise only 6 per cent of the budgeted capex, compared to 66 per cent in the same period last year.

 

If the overall trend of nearly a 15 per cent decline in capex for the April-October FY25 period continues into the second half of the current financial year, economists believe it will negatively impact growth, as seen in the second-quarter gross domestic product (GDP) numbers, and result in missing the yearly capex target.

 

India’s growth slowed to a seven-quarter low of 5.4 per cent in the July-September period of FY25.

 

“It is difficult to pinpoint the reason (behind the decline in capex), but the impact has been reflected in the GDP data. Capex has improved in comparison to the first quarter (Q1), but the pace is not adequate. If we continue on the same trajectory, it will be difficult to meet the full year’s target,” said Vivek Kumar, an economist at QuantEco Research.

 

Government officials have indicated that the Centre may relax cash management guidelines for the last quarter (January–March) of FY25 to allow lagging departments and ministries to utilise their allocated capex for the financial year.

 

“Slowdown in Q1 for road construction has kept capex down, combined with the monsoon, which ended late. Also, the just-in-time policy means expenditure is made only when disbursements are made. Hence, one can expect a fast pickup. Railways are not impacted much by rains, as train coaches are built indoors,” said Madan Sabnavis, chief economist at Bank of Baroda.

 

Kumar is still hopeful. “Ideally, there should be a pickup in the coming months since there is a growth implication. We have seen the government execute this kind of capex in the past two years,” he added.