Union Budget 2026 Set to Prioritize Public Capital Expenditure
The Indian government appears poised to maintain its strong emphasis on public capital expenditure in the forthcoming Union Budget 2026. Experts anticipate a notable increase in the capex outlay, projecting a rise of 10 to 15 percent from the current allocation of Rs 11.21 lakh crore. This move comes as private sector investment remains cautious, according to reports from PTI.
Economists Highlight Fiscal Headroom for Growth
Scheduled for presentation in Parliament on February 1, the Budget possesses sufficient fiscal flexibility to enhance public capital spending. Economists argue that the government should leverage this opportunity to sustain the nation's growth momentum. They stress the importance of strategic allocation to drive economic expansion.
Ranen Banerjee, Partner and Economic Advisory Services leader at PwC, shared his insights with PTI. He explained that the economy's capacity to absorb capital expenditure is limited. "You cannot increase it by 30 percent overnight," Banerjee noted. He emphasized the need for adequate construction company capabilities and heavy machinery availability.
Banerjee expects a more moderate increase of around 10 percent in capex. He forecasts an allocation of approximately Rs 12 trillion for the upcoming fiscal year.
Private Investment Presents a Mixed Picture
Aditi Nayar, Chief Economist at ICRA, provided a detailed analysis of private sector investment trends. She pointed out that the challenge with private capex is not a widespread slowdown. Instead, investment remains uneven across different sectors.
Traditional industries like cement and steel are experiencing expansion. This growth is largely fueled by higher public investment, which generates demand for private players. Simultaneously, emerging greenfield sectors such as data centers, electric vehicles, and renewable energy are witnessing robust investment momentum.
However, Nayar highlighted ongoing difficulties for export-oriented sectors and industries facing intense import competition. These challenges continue to dampen private investment appetite, creating a more difficult environment for certain segments of the economy.
Future Outlook for Government Spending
Looking ahead, Nayar suggested that FY27 could see a stronger push for capital expenditure. She indicated that fiscal flexibility might narrow in subsequent years, making immediate action crucial.
"FY27 could be a year where we hope that capex will be prioritized by the government," Nayar stated. She explained that FY28 will bring pay revisions, making it more challenging to allocate substantial funds for additional capex at that time.
Regarding growth projections, Nayar expressed optimism. She expects public capital expenditure to expand faster than the projected nominal GDP growth of 9.5 to 10 percent for FY27.
"I would at least hope to see a 12 to 15 percent capex growth if the fiscal space exists within the Budget," she added, underscoring the potential for accelerated public investment.
The government's continued focus on public capital expenditure aims to bolster infrastructure and stimulate economic activity. As the Budget date approaches, all eyes will be on the precise figures and strategies outlined by Finance Minister Nirmala Sitharaman.
