The Indian government has been steadily increasing its budgetary allocation for capital expenditure (capex), a critical move to lay the foundation for the much-needed GDP growth essential for India’s economic progress and prosperity. Reflecting this intent, the capex allocation has seen a remarkable increase from ₹2.72 lakh crore in FY18 to an unprecedented ₹11.11 lakh crore in the FY25 budget.
However, recent economic data paints a worrying picture. GDP growth for Q2 FY25 has slumped to an all-time low of 5.36%, the weakest since Q4 FY23, which recorded 6.18%. This slowdown has raised concerns among analysts and investors who have been optimistic about India’s potential, despite the global economic challenges characterized by geopolitical instability and volatile markets.
Adding to these concerns is the recently released data by the Controller General of Accounts (CGA), which shows that with just four months remaining in this fiscal year, India has achieved only 46.2% of its budgeted capex. This figure falls short by 1233 basis points compared to the same period in the last financial year, signaling a significant downward trend. This shortfall raises questions about the country’s ability to meet its ambitious GDP growth targets.
In this article, we will analyze the reasons behind this downward shift, explore strategies India can adopt to accelerate capex execution, and discuss the potential risks these strategies may entail.
Indian Capital Expenditure Trends
The following chart provide a snapshot of the top 10 items, which collectively account for 97% of the total capital expenditure (capex) allocation in the Budget. Among these, the top four items—Railways, Roads, Defense, and Transfers to States—constitute a substantial 89% of the total spend as of November 2024.
This is in stark contrast to the preceding fiscal year, where the Department of Telecommunications (DoT) made a significant contribution of 6.3% to the overall capex spend. In the current fiscal year, DoT’s share has dropped dramatically to just 1.056%, marking a shortfall of 524 basis points.
In absolute terms, this shortfall is substantial. The budgetary allocation for DoT this fiscal year is ₹84,500 crore, up from ₹70,100 crore last year. If DoT had maintained its previous spending trend, it should have spent ₹55,600 crore (65.8% of the budget estimate) by November 2024. However, it has managed to spend only 6.42% of the budget estimate, a glaring deviation.
Had DoT achieved its expected spend by November 2024, the cumulative capex would have been significantly closer to the November 2023 figure of ₹5.85 lakh crore. Instead, the total cumulative spend as of November 2024 stands at ₹5.135 lakh crore.
Where is DoT Spending Its Money?
According to the latest budget documents, 99% of the total budgeted capex expenditure (₹84,500 crore) for the Department of Telecommunications (DoT) is allocated to capital infusion into BSNL, amounting to a significant ₹82,916 crore. This implies that the entirety of the shortfall in DoT’s capex spending can be attributed to delays or underutilization in BSNL’s allocation.
The figure below illustrates this concentration of expenditure, emphasizing the critical role BSNL plays in DoT’s capex strategy for this fiscal year. Any deviation from planned spending in this area directly impacts the overall capex execution.
Does the DoT Shortfall Really Have an Impact?
A critical question arises: does the shortfall in DoT’s capital expenditure, particularly on account of spectrum allocation for BSNL, materially impact India’s economy? Does it significantly hinder any meaningful progress? Surprisingly, the answer is no.
For the past three years, India’s capex figures have been inflated by notional spending under the DoT’s account, where the actual cash outlay is significantly lower. To understand this better, we need to delve into the revival packages announced by the central government for BSNL over the last five years.
The Three Revival Packages for BSNL
- First Revival Package (October 23, 2019):
- Spectrum Allocation: 4G spectrum worth ₹20,140 crore (plus ₹3,674 crore GST) for BSNL and MTNL.
- Sovereign Guarantee Bonds: ₹15,000 crore to restructure debt and partly fund capex and opex.
- Voluntary Retirement Scheme (VRS): ₹17,169 crore to cover VRS costs for employees aged 50 and above, along with pension and gratuity.
- Second Revival Package (July 27, 2022):
- Spectrum Allocation: Spectrum worth ₹44,993 crore administratively allotted.
- Capex Funding: ₹22,471 crore for deploying indigenous 4G technology over four years.
- Viability Gap Funding: ₹13,789 crore to support unviable rural wireline operations from FY15 to FY20.
- AGR Dues: ₹33,404 crore converted into equity.
- Preference Shares: ₹7,500 crore to the government.
- Third Revival Package (June 7, 2023):
- Spectrum Allocation: 4G/5G spectrum worth ₹89,048 crore for BSNL through equity infusion.
- Increase in Authorized Capital: From ₹1.5 lakh crore to ₹2.1 lakh crore.
The Real Cash Flow
When summarizing these packages, the components can be categorized as follows:
- Spectrum Allocation: ₹90,000 crore (notional, as the money circulates back to the government).
- AGR Dues: ₹34,000 crore (also notional, converted into equity).
- Capex Funding: ₹22,471 crore (actual cash outflow for equipment and infrastructure).
- VRS for Employees: ₹17,169 crore (cash outflow).
- Viability Gap Funding: ₹13,789 crore (equity infusion).
Thus, the government’s actual cash outflows are limited to capex funding, and VRS, while spectrum allocation, Viability Gap Funding, and AGR dues are largely notional entries. This is crealy evident from BSNL’s Q2 Half Yearly Report Page 15 & 16. These notional components inflate the capex figures without significantly contributing to the real economic impact, apart from supporting BSNL’s operational enhancements. This distinction is evident when comparing the revenue account items—primarily cash outflows—which are considerably lower than the capex figures, as highlighted in the earlier chart.
Conclusion
The analysis highlights that while the shortfall in DoT’s capex, particularly for BSNL, appears substantial, its real economic impact is limited due to the notional nature of spectrum costs and AGR dues. With spectrum already allocated, any financial shortfall is a bookkeeping issue that the government can resolve by the fiscal year’s end.
The real challenge lies in the sluggish rollout of BSNL’s 4G and 5G infrastructure, which hampers network expansion, reduces coverage quality, and limits monetization, affecting both national value generation and customer experience. However, a positive sign emerges from DoT’s revenue account, where 78% of the budgeted ₹21,506 crore has been utilized, indicating better execution in this area.
Beyond telecom, the slowdown in spending on roads and transport presents a critical concern. These sectors are vital for infrastructure development and economic growth, and underperformance here risks broader implications for India’s GDP. Timely resolution of these challenges is essential to ensure that increased capex allocations lead to tangible economic progress.
