Budget 2026 Capex Push: India Inc Cheers Record ₹12.2 Lakh Crore Infrastructure Outlay

Union Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2026-27 on Sunday, outlining a strategy focused on bolstering domestic manufacturing and infrastructure while maintaining fiscal prudence. Against a backdrop of global geopolitical tensions and trade uncertainties, the budget aims to enhance India's economic resilience. The government announced a 9 percent increase in capital expenditure, signaling a continued commitment to public investment as a primary driver of growth.

Capital expenditure has emerged as the centerpiece of Union Budget 2026, with the Finance Minister describing the outlay as the highest in a decade. The government seeks to sustain growth momentum amid global uncertainty by pegging capital expenditure at ₹12.2 lakh crore for FY 2026-27. This is up from the revised estimate of ₹10.9 lakh crore in FY 2025-26. Capex as a share of GDP remains steady at around 3.1 percent, underscoring continuity in fiscal strategy.

The Scale of Public Investment

Public capex has risen sharply over the past decade, from ₹2 lakh crore in FY 2014-15 to ₹11.2 lakh crore in Budget Estimates for FY 2025-26, and now ₹12.2 lakh crore for FY 2026-27. Effective capital expenditure, which includes grants-in-aid for the creation of capital assets, is projected to rise sharply by 22.1 percent to ₹17.14 lakh crore in FY 2026-27. This lifts effective capex to 4.4 percent of GDP.

At a post-Budget briefing, Sitharaman described this as the highest at least in the last 10 years. The government's intent is clear: sustain infrastructure momentum and crowd in private investment. The advantage gained by stepping up capex post-Covid continues to support growth, and the government now wants to upgrade legacy industrial clusters to make them more efficient and cost-competitive.

Focus on Tier-2 and Tier-3 Cities

The Budget reiterates support for infrastructure in Tier-2 and Tier-3 cities, which have emerged as key growth hubs. Infrastructure development will continue to prioritize cities with populations above five lakh. As part of the new proposals, the government will allocate ₹5,000 crore per City Economic Region (CER) over five years, aimed at strengthening regional growth clusters.

To address concerns of private developers, the Finance Minister announced the creation of an Infrastructure Risk Guarantee Fund. This fund will offer prudentially calibrated partial credit guarantees to lenders to reduce risks during construction and early project phases. This move is specifically designed to encourage greater private sector participation in large-scale projects.

Sectoral Allocations and Strategic Missions

The increased capital outlay is directed towards several key sectors. Railways, roads, airports, and ports remain major beneficiaries. Specific initiatives were highlighted for critical minerals, pharmaceuticals, and electronics manufacturing. The allocation for the electronics component sector's incentive program will be increased to ₹400 billion, and a new ₹100 billion fund will be established for biopharmaceutical research over the next five years.

Fiscal Math and Market Sentiment

The government has continued to focus on fiscal consolidation, targeting a fiscal deficit of 4.3 percent of GDP for FY 2026-27. However, the government plans a record gross market borrowing of ₹17.2 trillion to finance its expenditure. While the deficit target was welcomed, the high borrowing figure weighed on market sentiments.

The stock market's initial reaction was mixed. The benchmark index fell by 1.5 percent following the announcement of a tax increase on some equity transactions. The tax was raised from 0.02 percent to 0.05 percent, a move that dampened investor sentiment in the short term. This highlights the delicate balance the government must strike between raising revenue and maintaining a favorable investment climate.

Industry Reactions and India Inc Support

Industry leaders broadly welcomed the approach. Dr. Anish Shah, Group CEO and MD of Mahindra Group, described the Budget as one that focuses on enhancing India's competitiveness. Anil Agarwal, Chairman of Vedanta Ltd, welcomed the focus on critical minerals and rare earth corridors. Kiran Mazumdar-Shaw of Biocon Group noted that placing biopharma among strategic frontier sectors represents a decisive investment in India's innovation future.

Analysis of the Growth Strategy

Economists see the strategy as a strategic pivot in public capital expenditure. The focus is shifting from a decade-long emphasis on building physical infrastructure like roads and railways to enabling productive manufacturing and employment generation. The focus on biopharma, electronics, and textiles is meant to maximize the growth multiplier from the upgraded infrastructure base.

However, some critics argue that private investment is not picking up because mass consumption demand remains low due to stagnant wage incomes. They suggest that the state is trying to increase its own capex to compensate for weak private demand. The success of this budget will depend on whether infrastructure-led growth can eventually revive private investment and jobs.

Conclusion

Union Budget 2026 charts a course of continued public investment to strengthen India's domestic economic foundations. By boosting capital expenditure in critical sectors, the government aims to enhance productivity and competitiveness. The success of this strategy will hinge on efficient execution, continued fiscal discipline, and the effective implementation of trade agreements to truly insulate the Indian economy and sustain its growth trajectory.