The Union Budget, expected to be tabled in Parliament on February 1, is likely to continue the government’s strong emphasis on capital expenditure (capex), with experts projecting a 10–15 per cent increase over the current allocation of Rs 11.21 lakh crore. Economists say the government has sufficient fiscal headroom to raise public investment and should use the opportunity to support economic growth, especially at a time when private sector capex remains cautious and uneven.
According to analysts, a sharp spike in public capex is unlikely due to execution constraints, but a steady rise remains feasible and desirable. Ranen Banerjee, Partner and Economic Advisory Services Leader at PwC, told PTI that while the government may want to increase spending, the economy’s ability to absorb a sudden surge in capital expenditure is limited.
“I believe that the capital expenditure absorption capacity in the economy is not very high. If you want to increase it by 30 per cent overnight, it is not going to happen because you need the capacity of construction companies, availability of heavy earth-moving machinery, and several other inputs,” Banerjee said.
He added that a 10 per cent increase in capex is more realistic, with allocations likely to be around Rs 12 trillion.
For the current financial year, Finance Minister Nirmala Sitharaman had proposed Rs 11.21 lakh crore towards capex for FY26. However, against the Budget Estimates of Rs 11.11 lakh crore for FY25, the government is expected to spend Rs 10.18 lakh crore as per the Revised Estimates, indicating a shortfall.
Private Capex Uneven, Not Entirely Weak
ICRA Chief Economist Aditi Nayar noted that private sector investment has not slowed across the board, but remains uneven across sectors. Traditional industries such as cement and steel are continuing to invest in capacity expansion, driven largely by demand created through higher public infrastructure spending.
At the same time, greenfield and sunrise sectors such as data centres, electric vehicles, and renewable energy are witnessing strong momentum and rising capital investment. However, export-oriented industries and sectors facing intense import competition are encountering a more challenging environment, she said.
FY27 Seen as Crucial for Government Capex Push
On the government’s fiscal priorities, Nayar pointed out that FY27 could be a critical year for stepping up capital expenditure.
“FY28 is when the pay revision will come in, and it will be much more difficult at that point to really set aside a lot for additional capex. So FY27 could see a strong push towards higher government capital expenditure,” she said.
She added that government capex growth in FY27 is expected to outpace nominal GDP growth, which is projected at 9.5–10 per cent.
“I would at least hope to see a 12–15 per cent capex growth, provided there is enough fiscal space within the Budget,” Nayar said.
With infrastructure spending continuing to act as a key growth driver, economists believe the upcoming Budget will once again rely on public capex as the main lever to stimulate demand, crowd in private investment, and sustain medium-term economic momentum.