India growth may slow to 5.5-6% in H2 as fiscal spending moderates after strong first-half push: Report

The report highlighted that fiscal spending was “front-loaded in FY27” adding that, “this, along with a weak rural sector, adverse base effect and an uncertain economic environment, could drag growth to 5.5-6% in 2HFY27 vs 7-7.5% in 1HFY27”.

The report further said the central government’s capital expenditure growth is expected to soften to below 5 per cent year-on-year between September 2026 and March 2027. It expects defence spending to pick up, while spending on railways and roads could remain stagnant or decline.

Total spending grew 10.5 per cent year-on-year in the first five months, slower than 13.8 per cent in the corresponding period last year. Capital spending excluding loans and advances, however, remained relatively strong at 15.2 per cent year-on-year growth in 5MFY27.

States’ capital expenditure grew 10.4 per cent year-on-year in the first five months, compared with 15.4 per cent a year earlier. The slower pace at both the Centre and states led to combined fiscal capex growth of 13.2 per cent, down from 20 per cent in 5MFY26.

CLSA said the outlook would also depend on the rural sector and the broader economic environment. “Considering lower receipts and economic uncertainty, the best-case scenario would be for the centre to meet its spending targets this year,” it said. (ANI)

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