The Centre has reaffirmed its commitment to capital expenditure as a cornerstone of fiscal policy, setting a 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, underscoring the government's ongoing emphasis on public investment to drive economic growth.
Historical Context and Growth Trajectory
To appreciate the scale of this allocation, it is essential to look back at historical spending. In 2018-19, the Centre's capital expenditure stood at just Rs 3.08 lakh crore. Over the past decade, capex has surged dramatically, maintaining high levels as the government has increasingly shouldered the burden of investment, particularly with private sector participation remaining subdued. The current capex target continues to account for 3.1% of the GDP, a figure that highlights the government's pivotal role in sustaining investment momentum.
Sectoral Allocation and Key Drivers
The road transport and highways sector, along with railways, remains the primary driver of India's infrastructure development. For FY27, these sectors are allocated Rs 2.94 lakh crore and Rs 2.77 lakh crore, respectively, collectively accounting for over 64% of the total capital expenditure. This focus mirrors the pattern in the ongoing financial year, where their combined outlay is estimated at 64.6% of total capex.
Defence capex holds the third-highest allocation, with Rs 2.19 lakh crore earmarked for FY27, up from Rs 1.86 lakh crore in FY26. In contrast, sectors like power generation, which once featured prominently in capex lists, have seen reduced allocations due to waning private sector interest since the mid-2010s.
Support for States and Economic Insights
Under the Scheme for Special Assistance to States for Capital Investment, the Centre has allocated Rs 2 lakh crore in 50-year interest-free loans for FY27, an increase from Rs 1.5 lakh crore in the current fiscal year. This move aims to bolster state-level infrastructure projects and stimulate regional economic development.
Economists have noted that the government's sustained focus on capex is crucial for supporting cyclical growth recovery. Investment bank Morgan Stanley emphasized that this emphasis, coupled with efforts to enhance manufacturing competitiveness and services sector attractiveness, will strengthen India's structural growth trends. However, HSBC economists, led by Pranjul Bhandari, pointed out that excluding allocations to the telecom sector reduces the capex growth rate from 11.5% to 9.6%, indicating nuanced dynamics in the spending plan.
Fiscal Strategy and Future Outlook
Despite the high capex targets, the Centre continues to adhere to a fiscal glide path aimed at gradual reduction. The revised estimate for capital expenditure in FY25-26 is Rs 10.96 lakh crore, slightly lower than the Budget estimate of Rs 11.21 lakh crore, reflecting adjustments in response to economic conditions. This strategic balancing act underscores the government's dual focus on stimulating growth through public investment while maintaining fiscal discipline.
In summary, the Centre's ambitious capex target for FY27 signals a robust commitment to infrastructure-led economic recovery, with significant allocations to key sectors and support for states, all set against a backdrop of cautious fiscal management.
