From capex cuts to liquidity crunch: The worrying signals from the economy

Slow capital expenditure by the government in Q3 amid elusive private capex, a high credit-deposit ratio, the rupee continuing to underperform among EM peers even as foreign portfolio investors have turned net buyers in equities, and manufacturing activity cooling, here are five signals from the economy this month.After maintaining a high level of capital expenditure in the first half of the current financial year, benefitting from a low base, the Centre fell short in the third quarter of the financial year.This, economists said, proved to be a drag on the Indian economy, which is expected to see a slower growth of 7.4% in Q3 compared to 8.2% in the previous quarter. The Centre’s capex declined 23.4% year-on-year in Q3 compared to a growth of 30.7% in the previous quarter.To be sure, the decline has come against the backdrop of high capex during the same quarter last year, following a delayed spending due to Lok Sabha elections.

Nevertheless, the sharp decline is expected to prove a statistical drag on GDP growth during the quarter. Moreover, the government cut its initial capex commitment for 2025-26 and revised it down by 2.3% to ₹10.96 trillion, signalling that capex-led growth momentum may be reaching a saturation point.Indian banks are currently facing tighter balance sheets as credit growth has pulled ahead of deposit mobilization.

The credit-deposit (CD) ratio, which had eased to 78.9% in May and June when deposit growth briefly outpaced lending, began climbing in the second half of the year. By December, it had risen to 81.75%, as credit growth accelerated to 14.5% year-on-year, compared with 12.7% for deposits.