Capex Up, Inflation Down: FY26 Starts Strong For Indian Economy, Says CareEdge Report

CPI inflation eased to 2.1 per cent in June, well below the Reserve Bank of India’s 4 per cent medium-term target, amid lower food inflation and a favourable base.

The Union Budget 2025-26 had allocated Rs 11.21 lakh crore for capital expenditure, which is 3.1 per cent of the GDP.

Source : ABPLIVE AI

Centre’s capital expenditure rose to 20 per cent of the budget estimate in April-May FY26, compared to 13 per cent in the same period last year, according to a report on Wednesday.

The Union Budget 2025-26 had allocated Rs 11.21 lakh crore for capital expenditure, which is 3.1 per cent of the GDP.

With the increase in government capex, the manufacturing sector seems to be on a firm growth trajectory, as India’s Manufacturing Purchasing Managers’ Index (PMI) rose to 58.4 in June, marking a fourteen-month high, said credit rating agency CareEdge Ratings in its report.

The Services PMI at 60.4 is at its highest level in the last 10 months. Industrial production, however, grew only 1.9 per cent during April-May in FY26 as against 5.7 per cent in the same period last year. Contraction in both electricity and mining sectors weighed on the overall IIP growth.

Meanwhile, tax generation also grew, as GST collections and E-way bills generation rose by 11.8 per cent and 20.5 per cent in Q1 FY26.

In FY26, GDP growth is projected at 6.4 per cent and current account deficit at 0.9 per cent, the rating agency said in its forecast. CPI inflation eased to 2.1 per cent in June, well below the Reserve Bank of India’s 4 per cent medium-term target, amid lower food inflation and a favourable base.

"We do not expect further RBI rate cuts unless downside risks to growth materialise," the report added.

Although businesses can’t expect cheaper loans because rates are likely to remain steady, they do have ample liquidity. The report mentions that the Weighted Average Call Rate (WACR) was 24 bps below the policy rate in July but may rise with Variable Rate Reverse Repo (VRRR) auctions.

The rupee has depreciated by around 2.3 per cent against the dollar since early May, which is still 1.6 per cent stronger than its February lows. India’s forex reserves, however, remain a key buffer, standing at $697 billion and providing a comfortable import cover, the report mentioned.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)