Union Budget 2026-27: Centre Reinforces Capex Focus with Rs 12.22 Lakh Crore Allocation
In a significant move to bolster economic growth, the Central government has announced a capital expenditure (capex) target of Rs 12.22 lakh crore for the financial year 2026-27. This represents an 11.5% increase from the revised estimate of Rs 10.96 lakh crore for the current fiscal year 2025-26, underscoring the government's continued emphasis on public investment as a key driver of development.
Historical Context and Growth Trajectory
The Centre's thrust on capex has been a defining feature of fiscal policy over the past decade, with spending levels rising sharply and remaining elevated. To put the current target in perspective, the government spent just Rs 3.08 lakh crore in 2018-19, highlighting a substantial expansion in infrastructure and capital outlays. This sustained focus is aimed at supporting cyclical growth recovery, as private sector investments have yet to gain significant momentum.
Sectoral Allocation and Infrastructure Priorities
The road transport and highways sector, along with railways, continues to be the primary driver of India's infrastructure development. For FY27, these sectors account for over 64% of the total capex allocation, with specific allocations of Rs 2.94 lakh crore for roads and Rs 2.77 lakh crore for railways. This mirrors the pattern in the current fiscal year, where their combined share is estimated at 64.6%.
Defence capex holds the third-highest allocation, set at Rs 2.19 lakh crore for FY27, up from Rs 1.86 lakh crore in FY26, reflecting a 17% year-on-year increase. In contrast, sectors like power generation, which once featured prominently in capex lists, have seen reduced allocations as private sector interest has waned.
Support for States and Fiscal Considerations
Under the Scheme for Special Assistance to States for Capital Investment, the government has allocated Rs 2 lakh crore for FY27 in the form of 50-year interest-free loans, up from Rs 1.5 lakh crore in the current financial year. This move aims to enhance state-level infrastructure projects and stimulate regional development.
Despite the high capex targets, the Centre remains committed to a fiscal glide path that is gradually tapering downwards. Economists note that excluding allocations for the telecom sector, the growth in capex drops from 11.5% to 9.6%, indicating nuanced adjustments in spending priorities.
Economic Implications and Expert Insights
Economists and financial institutions have welcomed the government's continued focus on capex. Investment bank Morgan Stanley highlighted that maintaining central government capex at 3.1% of GDP in FY27—consistent with the FY26 revised estimate—will support cyclical growth recovery while strengthening India's structural growth trends through improved manufacturing competitiveness and services sector attractiveness.
HSBC economists, led by Pranjul Bhandari, pointed out that the significant increases in defence capex and loans to states are key highlights, though the overall growth figure requires careful interpretation when telecom outlays are excluded.
The Union Budget 2026-27 thus reinforces the Centre's role as the primary investor in the economy, with a clear focus on infrastructure and capital formation to drive long-term growth and development.
