Capex Shortfall May Slow EPC Growth in FY26

Chennai: Considering the trend in recent years, the actual capex spend by the government may not meet the target in FY26 and this may see a subdued growth in the engineering, procurement and construction projects.

In FY25, the capex spending increased just 7 per cent to Rs 10.2 lakh crore against the budgeted forecast of 17 per cent to Rs 11.1 lakh crore. The actual capex spend has been lower than the budgeted spend in recent years. India Ratings expects the actual capex spend in FY26 to be Rs 10.9 lakh crore against Rs 11.2 lakh crore.

The FY26 Budget announced a 42 per cent hike in grants in aid for capital assets, which have been underperforming in recent years and remained flat at around Rs 3 lakh crore despite the budget of Rs 3.7 lakh crore-Rs 3.9 lakh crore. Similar to the recent years, a Rs 4.3 lakh crore announced in the FY26 Budget is likely to undershoot expectations materially.

Due to lower actual capex spend, revenue growth for the EPC sector is expected to be lower than 10 per cent against 10-12 per cent growth expected earlier. The allocations to key sectors such as roads and railways remained flat in FY26, with low single digit growth in FY25. As a result, the EPC sector may continue to witness increased competition, which may put margins under pressure.

The lower allocation in the FY26 Budget shifts the focus to state and private spending. The budget also had announced special assistance to states for capex investment of Rs 1.5 lakh crore through 50-year interest-free loans. Historically, the full utilisation of such assistance has never happened in FY25 actual spending at Rs 1.25 lakh crore as against the budget allocation of Rs 1.5 lakh crore.