In a significant budgetary announcement, Finance Minister Nirmala Sitharaman has reinforced the government's commitment to capital expenditure by proposing a record allocation of Rs 12.2 lakh crore for the fiscal year 2026-27. This marks a substantial increase of approximately 15% over the revised estimate for the current financial year, continuing the administration's focus on infrastructure-led growth.
Historic Capital Expenditure Allocation
During her ninth consecutive budget speech, Sitharaman highlighted that this allocation represents 4.4% of India's Gross Domestic Product (GDP), which she described as the highest level in at least a decade. The finance minister emphasized that this could potentially be the highest capital expenditure allocation in India's recent economic history when considering earlier data periods.
The proposed public capital expenditure demonstrates a remarkable growth trajectory from Rs 2 lakh crore in the 2014-15 fiscal year to Rs 11.2 lakh crore in the budget estimate for 2025-26. "In FY2026-27, I propose to increase it to Rs 12.2 lakh crore to continue the momentum," Sitharaman stated during her parliamentary address.
Sector-Wise Allocation Breakdown
The budget provides detailed allocations across key infrastructure ministries:
- Road Transport and Highways: Receives the highest allocation of over Rs 2.9 lakh crore
- Railways: Allocated approximately Rs 2.8 lakh crore
- Defense: Granted over Rs 2.2 lakh crore for modernization and infrastructure
Addressing Implementation Challenges
Budget documents reveal that for the second consecutive year, the government has fallen short of its capital expenditure targets. In the 2024-25 fiscal year, actual capital expenditure stood at Rs 10.5 lakh crore against a budget estimate of Rs 11.1 lakh crore. Similarly, during the current fiscal year, the capital expenditure has been revised downward to Rs 10.9 lakh crore from the initial estimate of Rs 11.2 lakh crore.
To address these implementation challenges and boost economic activity, the Centre is collaborating with state governments to support their public investment initiatives. This coordinated approach is considered crucial for generating demand across various sectors and stimulating overall economic growth and job creation.
New Infrastructure Risk Guarantee Fund
In a significant policy announcement, Sitharaman revealed plans to establish an Infrastructure Risk Guarantee Fund. This initiative aims to provide carefully calibrated partial credit guarantees to lenders, thereby strengthening private developers' confidence regarding risks during infrastructure development and construction phases.
The finance minister explained that this mechanism is designed to mitigate perceived risks that often hinder private sector participation in large-scale infrastructure projects, potentially unlocking greater investment in this critical sector.
During her post-budget interaction with reporters, Sitharaman emphasized the strategic importance of sustained capital expenditure, stating that the current allocation represents a carefully calibrated approach to maintaining economic momentum while addressing implementation realities from previous fiscal years.
