Budget 2026: Capex Hiked to ₹12.2 Lakh Crore for Infra Push

Introduction

In the Union Budget for 2026-27, Finance Minister Nirmala Sitharaman announced a significant 8.9% increase in capital expenditure (capex), allocating ₹12.2 lakh crore to sustain the government's focus on infrastructure-led economic growth. This move underscores a continued strategy to use public spending to boost private investment, enhance logistics, and develop urban centres beyond the major metros. The increased outlay is aimed at strengthening India's long-term economic capacity and supporting its ambition to become the world's third-largest economy.

A Decade of Rising Public Investment

The budget highlights a consistent and sharp rise in public investment over the past decade. The Finance Minister noted that public capital expenditure has grown manifold, from approximately ₹2 lakh crore in the 2014-15 fiscal year to ₹11.2 lakh crore allocated for 2025-26. The latest proposed increase to ₹12.2 lakh crore for FY27 is designed to maintain this momentum. This sustained capex push is widely seen by economists as a critical policy lever with a high multiplier effect, stimulating growth in core sectors and generating large-scale employment.

Focus on Urban Growth Centres

A key theme of the budget is the strategic development of infrastructure in emerging urban areas. The government will specifically focus on cities with populations exceeding five lakh, which includes numerous Tier-2 and Tier-3 cities. These urban centres have expanded to become important hubs of economic activity. By improving infrastructure in these regions, the government aims to foster balanced regional development, ease the pressure on megacities, and create new opportunities for growth and innovation. The budget introduced the concept of City Economic Regions (CERs), with a proposed allocation of ₹5,000 crore per CER over five years to drive this initiative.

De-risking Private Investment

To encourage greater private sector participation in large-scale projects, the budget proposed the establishment of an Infrastructure Risk Guarantee Fund. This new fund is designed to address long-standing concerns from lenders and developers about risks encountered during the construction phase. By providing prudentially calibrated partial credit guarantees to lenders, the fund aims to strengthen the confidence of private players, improve the flow of long-term capital, and make infrastructure projects more financially viable.

Strengthening Logistics and Connectivity

The budget places a major emphasis on greening freight movement and resolving logistics bottlenecks to improve efficiency and reduce costs. A significant announcement was the plan to establish new dedicated freight corridors, including an east-west corridor connecting Dankuni in West Bengal to Surat in Gujarat. This is expected to promote more environmentally sustainable cargo transport.

Inland waterways also received a major push, with a proposal to operationalise 20 new national waterways over the next five years. The initiative will begin with National Waterway-5 in Odisha, which will connect mineral-rich areas with industrial hubs and major ports. To support this, the government will also develop a ship repair ecosystem in Varanasi and Patna.

Market Reaction and Economic Impact

The announcement of higher capex was positively received by the market, with infrastructure and capital goods stocks seeing gains. Companies like Larsen & Toubro, IRB Infrastructure Developers, and Adani Ports registered an uptick, reflecting investor confidence in improved order books and sustained demand. Analysts noted that the robust double-digit growth in capex signals a clear policy direction that benefits sectors such as steel, cement, power, and transportation.

This infrastructure spending occurs within a strong economic context. The Indian economy is projected to grow at 7.4% in the current financial year, with the government aiming for a fiscal deficit of 4.4% of GDP. The sustained public investment is expected to have a multiplier effect, crowding in private investment and supporting overall economic activity.

Analysis

The government's continued emphasis on capital expenditure is a strategic choice to build long-term productive capacity. By investing in roads, railways, ports, and urban infrastructure, the budget aims to lower logistics costs, improve business efficiency, and enhance connectivity. The focus on Tier-2 and Tier-3 cities is particularly important for ensuring that the benefits of growth are more widely distributed across the country. The creation of the Infrastructure Risk Guarantee Fund is a pragmatic step to unlock private capital, which is essential for meeting India's vast infrastructure needs.

Conclusion

The Union Budget 2026-27 reinforces the government's commitment to an infrastructure-led growth model. The allocation of ₹12.2 lakh crore for capital expenditure, combined with initiatives to boost private investment and improve logistics, sets a clear path for the coming fiscal year. These measures are expected to stimulate economic activity, create jobs, and build a more resilient and integrated infrastructure network, laying the groundwork for sustained economic expansion in the years ahead.