Government’s capex push crucial for 6.5% GDP growth in FY25, says EY India

EY India has emphasised that for the government to achieve the implied Q4 FY25 GDP growth of 7.6% and meet the annual target of 6.5%, increased investment expenditure—particularly capital expenditure—will be essential. The report, authored by D.K. Srivastava, Chief Policy Advisor at EY India, highlights concerns that private final consumption expenditure may not be sufficient to bridge the gap, given recent trends.

According to EY’s March Economy Watch report, Q3 FY25 growth is estimated at 6.2%, necessitating a sharp rise to 7.6% in Q4. However, achieving this would require private final consumption expenditure to grow by 9.9%—a level not witnessed in recent years.

The report underscores that an alternative route to sustaining growth is ramping up investment expenditure, particularly through government capital outlays. As per the Controller General of Accounts (CGA) data released on 28 February 2025, the central government has spent ₹7.57 lakh crore on capital expenditure up to January 2025. To meet the revised estimate of ₹10.18 lakh crore, an additional ₹2.61 lakh crore must be spent in the last two months of FY25, whereas historical spending in February and March has averaged only ₹1.81 lakh crore.

If government investment expenditure falls short of the revised estimate—already lower than the initial budget target of ₹11.1 lakh crore—it could pose a challenge to achieving the projected 7.6% GDP growth in Q4, potentially leading to a slight downward revision of the full-year 6.5% growth estimate.