Slower govt spend may prompt relaxing expenditure caps in Q4

The government may consider relaxing cash management guidelines in the fourth quarter of FY25. This could relax expenditure caps traditionally enforced in the January-March quarter.

As per the cash management guidelines, public expenditure is capped at 33% of the budget estimates (BE) for ministries during Q4, with a 15% cap for March alone. While no final decision has been made, sources indicate a call may be taken after a thorough review of this year’s expenditure requirements.

In the first half of FY25, the government’s spending levels reached 43.8% of BE, slightly below the 47.1% recorded in the same period of FY24. Capital expenditure (capex) in H2FY25 has also seen a dip, standing at 37.3% compared to 49% in H2FY24.

Despite these figures, government officials remain optimistic about meeting both capex and overall expenditure targets for FY25, following extensive reviews with various ministries and departments.

Sources indicate central government ministries, which do the heavy lifting for capex, mainly roads and railways, are already on track in terms of their capital spend. However, the picture at the state level is not very clear.

One indication of this is the lower borrowings of state governments, which is good fiscal management, but it may also point towards lower expenditure by states. States have borrowed around ₹5 lakh crore against the ₹8.38 lakh crore allowed till December.

Tax devolutions by the Centre too have probably aided states in avoiding market borrowings. The Centre has already released 65% of the ₹12.47 lakh crore devolution aim for this fiscal.