Budget 2026: Centre continues thrust on capex, FY27 target fixed at Rs 12.22 lakh crore

3 min readUpdated: Feb 2, 2026 05:05 AM IST

In a continuation of the Centre’s thrust on public investment post the Covid-19 pandemic, the government has allocated Rs 12.22 lakh crore for financial year 2026-27, up 11.5% from the revised estimate of Rs 10.96 lakh crore for the current fiscal. The capex level, which continues to account for 3.1% of the GDP, indicates the government will continue with the heavy lifting when it comes to investments, with private investments struggling to lift off.

For the ongoing financial year 2025-26, the revised estimate for capital expenditure is seen at Rs 10.96 lakh crore, lower by Rs 25,335 crore than the Budget estimate of Rs 11.21 lakh crore. The Centre has been almost singlehandedly pushing capex as the mainstay for fiscal spending, which has, over the last decade or so, risen sharply and stayed at a high level. To put this current capex target in perspective, the Centre had spent just Rs 3.08 lakh crore in 2018-19.

Economists said that the government’s continued focus on capital expenditure will support the cyclical growth recovery. “We expect the Budget to support cyclical growth recovery through its emphasis on capex (central government capex stays at 3.1% of GDP in FY27, similar to F26 Revised Estimate) and to strengthen India’s structural growth trend through steps that improve manufacturing competitiveness and services sector attractiveness,” investment bank Morgan Stanley said. The high government capex is despite the fact that the Centre has been trying to stay on a fiscal glide path that is tapering downwards.

The road transport and highways sector, along with railways, continued to be the primary driver of India’s infrastructure, accounting for over 64% of the Centre’s total capital expenditure allocation for the upcoming financial year 2026-27. Capex allocation for road transport and highways is Rs 2.94 lakh crore for FY27, while for railways is Rs 2.77 lakh crore. For the ongoing financial year also, the combined capital outlay for road transport and highways along with railways is estimated to account for 64.6% of the total capex.

Defence capex has the third-highest allocation in the government’s total capital expenditure allocation, estimated to be Rs 2.19 lakh crore in FY27 as against Rs 1.86 lakh crore in FY26. Sectors such as power generation, which figured high up in the capex list till around the mid-2010s, have now tapered off, since private sector interest in the sector has progressively waned.

The capex growth turns out to be lower if one were to exclude allocation for telecom. “Defence capex (17% y-o-y) and loans to states (raised from Rs 1.5 lakh crore to Rs 2 lakh crore) have seen big increases. Worth noting, that if outlays to the telecom sector are excluded, the 11.5% growth (in capex) falls to 9.6% growth,” a note by HSBC economists led by Pranjul Bhandari said.

For states, the 50-year interest-free loans under the Scheme for Special Assistance to States for Capital Investment, an amount of Rs 2 lakh crore has been allocated for FY27 as against Rs 1.5 lakh crore for the current financial year.

Aanchal Magazine is a Deputy Associate Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With 15 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience.
Expertise & Focus Areas: Magazine’s reporting is rooted in “fiscal arithmetic” and economic science. Her work provides critical insights into the financial health of the nation, focusing on:

Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions.

Fiscal Metrics: Analysis of taxation, revenue collection, and government spending.

Labour & Society: Reporting on labour trends and the intersection of economic policy with employment.

Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy.
Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region’s culture and traditions and works to map the complex journeys of displacement associated with it.
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