Central government's capital expenditure will increase by 25% in the second half of FY 2025, claims Jefferies

According to a Jefferies report, the capital expenditure of the central government is expected to grow strongly by 25% on a year-on-year basis in the second half of FY 2025. The report also says that the total expenditure of the government may also increase by 15%. Despite the rise in populist schemes during elections, the central government is committed to investing in infrastructure development. According to the report, while populist policies have gained momentum, especially during state elections, the spending priorities of the central government show a balanced approach.

Jefferies also expects 15% on-year growth in the Centre's overall spending in the second half of the fiscal year to March 31, 2025, and over 25% rise in capex. Capital expenditure in actual terms would continue to emerge higher despite populist policies.

The rising rate of success of freebies within state elections, including Maharashtra's welfare program pegged at Rs 460 billion annually, about 1.1% of the state GDP, raises concern on the notion of populism, the report said.

Analysis by the report said that currently, 14 out of 28 Indian states have such schemes in place, which covers around 120 million families and is costing a total of 0.7-0.8% of India's GDP. The Centre, however, is still focused on building long-term economic wealth with infrastructure creation - a basic requirement for sustained growth.

The report also commented on the financial markets. According to the report, the Indian stock market seems to be stabilizing after the recent correction, especially in the mid-cap segment. But foreign investors have sold in excess of $12.5 billion worth of Indian equity shares in the last couple of months huge amount if one considers historical standards something that domestic investors, by and large, have digested. Equity mutual funds reported record inflows in October when the stock market recovered.

The report explained that strong domestic flows are, in fact, a reassuring factor for the markets in India. Populist measures notwithstanding, there is stability indicated by a combination of government capital expenditure and strong local investment.