Government capex growth may slow in H2 FY27, non-Defence spending could fall 3%: Jefferies

New Delhi: India’s government capital expenditure growth is set to slow in the second half of FY27, with non-defence capital spending potentially declining by around 3%, according to global brokerage Jefferies. The assessment comes as weaker-than-expected nominal GDP growth and a tighter fiscal position could limit the Centre’s room to sustain the pace of spending seen earlier in the year.

Follow Defence Watch on LinkedIN

The moderation is expected to be uneven across sectors. Defence spending is likely to remain comparatively protected, with Jefferies expecting continued momentum in defence capital expenditure, while non-defence areas face greater pressure. The brokerage had earlier projected domestic defence capex to grow at a 16% compound annual rate between FY26 and FY30, supported by India’s indigenisation drive.

The broader spending picture already shows signs of moderation. Government capital expenditure excluding loans and advances grew 15.2% year-on-year during the first five months of FY27, while combined Centre-and-state fiscal capex growth stood at 13.2%, down from 20% during the comparable period of FY26. The Centre’s fiscal deficit had reached 41.9% of the full-year target by August.

Follow Defence Watch on Whatsapp channel

The expected shift could have implications for infrastructure-heavy sectors such as roads and railways, where spending may stagnate or decline as the government prioritises fiscal consolidation. Recent analysis has similarly projected central capex growth to fall below 5% between September 2026 and March 2027, while defence spending could pick up.

For India’s defence-industrial ecosystem, the divergence is significant. Continued defence capex would provide relative protection to major programmes involving domestic production, while a slowdown in non-defence government investment could temper the broader public-sector capex cycle. The emerging pattern therefore points towards greater prioritisation of strategic and defence expenditure even as overall government capital spending loses momentum in the second half of FY27.

(Defence Watch– India’s Defence News centre that places the spotlight on Defence Manufacturing, Defence Technology, Strategy and Military affairs is on Twitter. Follow us here and stay updated.)