- Provisioning of Rs 12.2 lakh crore for capital expenditure in FY27, a 9% increase
- Government to develop infrastructure in Tier-2 and Tier-3 cities and set up a risk fund
- Capex allocation is 3.1% of Crisil's GDP estimate for FY27, same as the current fiscal
Finance Minister Nirmala Sitharaman announced on Sunday the provisioning of Rs 12.2 lakh crore for capital expenditure for financial year 2027, a 9% increase.
Presenting the Union Budget 2026 in the Lok Sabha, the finance minister said the government would continue to develop infrastructure in Tier-2 and Tier-3 cities. She also proposed to set up a risk guarantee fund for the infrastructure sector.
A scheme for enhancement for construction and infrastructure equipment will be introduced to strengthen domestic manufacturing, she added.
The capex allocation is 3.1% of Crisil's GDP estimate for the next fiscal. The budget estimate for this fiscal was also 3.1%. Grants in aid for capital creation typically should add another 1% points to this, according to Crisil.
Over the past few years, the government has sharply increased spending on roads, railways, defence manufacturing, urban infrastructure and logistics to crowd in private investment.
For FY27, economists expect another meaningful rise in capex, though at a more measured pace compared to the post-pandemic surge. Railways, renewable energy, power transmission, defence and urban transport are seen as priority areas, with continued support for state-level infrastructure through interest-free loans.
Capex Allocation In Previous Budget
In the 2025–26 Budget, the Centre earmarked Rs 11.21 lakh crore for capital expenditure, which is 3.1% of the GDP, marking a measured increase over the previous year's Budget Estimate.
Sectoral trends over the past year show defence, which saw a 4.6% rise in capital outlay in FY2025–26, remains a strategic priority, driven by a surge in domestic manufacturing and record defence exports. Meanwhile, critical infrastructure sectors such as roads, railways, energy continue to anchor long-term growth, even as last year's numbers indicated plateauing outlays for some transport ministries.
The broader capex ecosystem, however, remains strong: between FY2020 and FY2025, government investment in key infrastructure sectors grew nearly 39%, and renewable energy capacity saw double‑digit growth, reflecting a structural shift in India's development arc.
What Economic Survey 2026 Revealed About Capex
- The effective capital expenditure of the Central government rose from an average of 2.7% of GDP in the pre-pandemic period to about 3.9% post-pandemic, and to a higher 4% of GDP in FY25.
- Through Special Assistance to States for Capital Expenditure (SASCI), the Centre has incentivised States to maintain capital spending at around 2.4% of GDP in FY25.
- The Government of India's capital expenditure has increased nearly 4.2 times, from Rs 2.63 lakh crore in FY18 to ₹11.21 lakh crore in FY26 (BE), while effective capital expenditure in FY26 (BE) is Rs 15.48 lakh crore, positioning infrastructure as a key growth driver.
- Investment activity strengthened in FY26, with Gross Fixed Capital Formation growing by 7.8% and its share remaining steady at 30% of GDP. This momentum was buoyed by sustained public capital expenditure and a revival in private investment activity, as evident from corporate announcements.
(With PTI inputs)
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