The Indian government is set to maintain its aggressive infrastructure-led growth strategy, with plans to increase its capital expenditure (capex) for the financial year 2026-27 (FY27) to nearly ₹12 trillion. This move, representing an approximate 7% rise, underscores the Centre's continued reliance on public investment to bolster the economy amidst persistent global uncertainties and a cautious private sector.
Betting on Public Capex for Growth Momentum
According to sources familiar with the matter, the proposed increase to ₹12 trillion in FY27 signals that public investment will remain central to supporting economic expansion. This strategy is seen as critical while private capital expenditure (capex) revival remains uneven and external risks from geopolitics, trade, and financial volatility linger. The plan assumes the government will meet its current fiscal year targets without slippage, aided by revenue savings and improved fund utilization by agencies.
In the current fiscal year (FY26), the Centre had allocated ₹11.21 trillion for direct capital expenditure, a 10% jump over the previous year's revised estimate. Additionally, it provided ₹3.9 trillion as grants to states for their own capital spending. As of November 2025, total capex spending stood at about ₹6.6 trillion, or 59% of the budget allocation.
Sectoral Focus and Strong Utilization Trends
More than 85% of the Centre's effective capital expenditure is concentrated in four key areas: road transport and highways, railways, defence, and transfers to states for infrastructure projects. Policymakers believe these segments, which have demonstrated strong fund utilization, deserve continued support to accelerate national asset creation.
Official data reveals robust spending trends. By the third week of December 2025, the Railways had utilized nearly ₹2 trillion, close to 80% of its over ₹2.5 trillion allocation. Similarly, the road transport ministry had spent about ₹2 trillion, roughly 79% of its allocation. Both sectors are expected to fully exhaust their capex before the fiscal year-end, building a strong case for higher allocations in FY27. The Railways has already indicated a need for ₹2.76 trillion next year to modernize trains and enhance safety systems.
The Private Investment Lag and Economist Perspectives
While public spending has surged, private investment has struggled to regain its pre-pandemic vigor. In FY24, private non-financial corporations invested ₹29.68 trillion, marginally below the ₹29.73 trillion in FY23. As a share of total fixed investment, private capex declined from 34.6% in FY22 to 32.4% in FY24. In contrast, combined central and state capex rose from ₹8.75 trillion (12.5% of GDP) in FY22 to ₹12 trillion (13.2% of GDP) in FY24.
Economists highlight the necessity of this continued push. "With external uncertainties likely to linger into 2026, strength in domestic demand will be critical," said Rumki Majumdar, an economist at Deloitte India. "A continued capex push will remain one of the key drivers of domestic demand and growth next year." She added that beyond headline spending, improving project execution through regulatory easing and faster clearances is vital, and public-private partnerships must play a larger role.
Rishi Shah, partner at Grant Thornton Bharat, noted that India has historically underinvested relative to its potential. "Currently at around 32% of GDP, there’s significant headroom. Comparable economies invest 35–38% of GDP to sustain 7–8% growth," he said. Maintaining capex at 3.1–3.2% of GDP through FY27 reflects pragmatic policymaking, with quality infrastructure investments acting as long-term supply-side enablers for the economy.
