Budget 2026: Capex Hiked to ₹12.2 Trillion to Boost Infrastructure

Introduction: A Continued Focus on Infrastructure-Led Growth

The Union Budget for 2026-27 has reaffirmed the government's commitment to an infrastructure-led growth strategy, with Finance Minister Nirmala Sitharaman announcing a significant increase in capital expenditure (capex). The allocation has been raised to ₹12.2 trillion for the fiscal year 2026-27, marking a substantial push to enhance the country's physical and industrial infrastructure. This move signals the government's intent to use public spending as the primary engine for economic momentum, aiming to create jobs, attract private investment, and improve long-term productive capacity. The budget continues a trend established over the past decade, where public investment in infrastructure has been consistently scaled up to support India's economic ambitions.

The Headline Numbers: A Closer Look at the Allocation

The proposed capex of ₹12.2 trillion for FY27 represents an 11.5% increase over the revised estimate of ₹10.9 trillion for the current fiscal year, 2025-26. While this demonstrates a strong commitment to continued spending, the government acknowledged that it expects to fall short of its initial FY26 budget estimate of ₹11.2 trillion by approximately ₹25,335 crore, or 2.3%. For the upcoming fiscal year, the capex outlay stands at 3.1% of the Gross Domestic Product (GDP). When grants-in-aid for the creation of capital assets are included, the effective capital expenditure rises to 4.36% of GDP, aligning closely with the fiscal deficit target of 4.3% for FY27. This careful balancing act highlights an effort to stimulate growth while adhering to a path of fiscal consolidation.

A Decade of Expanding Public Investment

In her budget speech, the Finance Minister highlighted the remarkable trajectory of public capex over the last ten years. The allocation has grown more than six-fold, from ₹2 trillion in FY2014-15 to the proposed ₹12.2 trillion for FY27. This sustained increase has been supported by the introduction of new financing instruments like Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), alongside institutions such as the National Investment and Infrastructure Fund (NIIF) and the National Bank for Financing Infrastructure and Development (NaBFID). This long-term strategy has been central to the development of national highways, railways, ports, and urban transport networks across the country.

Key Infrastructure Initiatives for FY27

Beyond the headline figure, the budget introduced several targeted initiatives aimed at deepening infrastructure development and encouraging private sector participation. A key announcement was the creation of an Infrastructure Risk Guarantee Fund. This fund is designed to provide partial credit guarantees to lenders, mitigating risks during the construction and early operational phases of projects. The government expects this will strengthen the confidence of private developers and unlock more private capital for large-scale projects. The budget also reiterated its focus on developing infrastructure in Tier-2 and Tier-3 cities with populations exceeding five lakh, recognizing them as emerging centers of economic growth. Further, a new scheme for the enhancement of construction and infrastructure equipment aims to boost domestic manufacturing of high-value machinery, reducing import dependency.

Financial Snapshot: Budget 2026-27 Capex

Diversifying the Infrastructure Push

The budget also signaled a diversification of infrastructure spending into new and strategic areas. Key proposals include:

• New Freight and Rail Corridors: A new Dedicated Freight Corridor will connect Dankuni in the east to Surat in the west. Additionally, seven high-speed rail corridors are planned to act as inter-city growth connectors.
• Inland Waterways: The government plans to operationalize 20 new National Waterways over the next five years to promote cost-effective and low-carbon cargo movement.
• Strategic Sectors: Dedicated rare earth corridors will be developed to reduce import dependence. The budget also includes a ₹20,000 crore outlay over five years for scaling up Carbon Capture, Utilisation, and Storage (CCUS) technologies across key industrial sectors.
• Urban Development: An allocation of ₹5,000 crore per City Economic Region (CER) over five years is proposed to strengthen regional growth clusters through a challenge-based financing mechanism.

Economic Perspectives and Analysis

Economists have offered varied perspectives on the budget's capex strategy. Madan Sabnavis, Chief Economist at Bank of Baroda, viewed the increase positively, noting that the government is expanding into new areas beyond traditional sectors like roads and railways. Others, like Rumki Majumdar of Deloitte, see a focus on quality spending designed to crowd in private participation. However, some analysts expressed caution. Upasna Bhardwaj of Kotak Mahindra Bank pointed to the sharply higher-than-expected gross borrowing figure as a potential concern for market sentiment. A more critical view came from development economist Jayati Ghosh, who argued that private investment remains weak due to low mass consumption. She suggested that the government's capex push is compensating for this weakness, whereas a greater focus on social spending and small enterprises could more effectively boost employment and demand.

Conclusion: Sustaining Momentum Amidst Challenges

The Union Budget 2026-27 firmly places public capital expenditure at the core of India's economic strategy. The ₹12.2 trillion allocation continues the government's multi-year effort to build modern infrastructure, enhance connectivity, and stimulate industrial activity. New initiatives like the Infrastructure Risk Guarantee Fund and a focus on emerging urban centers demonstrate a nuanced approach aimed at both scaling up investment and de-risking projects for private players. The ultimate success of this strategy will depend on efficient execution, the ability to genuinely crowd in private investment, and whether the resulting growth proves to be inclusive and sustainable in the long run.