Union Budget 2026: Sitharaman proposes raising FY27 capex to ₹12.2 trillion

The Union government provided yet another boost to central capital expenditure by raising its capex allocation to ₹12.2 trillion to develop infrastructure projects in the year starting 1 April, building on substantial increases in recent years to spur economic growth.

Mint reported on 1 January that the government’s plan is to maintain momentum on central capex support in fiscal year 2027 (FY27), with a likely allocation of ₹12 trillion.

The government has stepped up its capex budget in recent years to improve India’s creaking infrastructure, create jobs and accelerate economic growth. It budgeted ₹12.2 trillion for infrastructure development in FY27, an increase of 8.83% from the previous year’s capex of ₹11.21 trillion.

Capex had grown by a mere 0.9% in the current year (FY26), after growing by 11% in FY25. Capex grew by 37% in FY24, following 24% growth in FY23 and 40% in FY22. With another hike, the government is expected to continue supporting the infrastructure growth story as private investment scales up, helping realise the country’s Vision 2047 goals.

Presenting the budget proposals for FY25, finance minister Nirmala Sitharaman said capital investment outlay is being increased again this year by 8.83% to ₹12.2 trillion. The budgeted capital expenditure is more than three times that of FY 2019-20.

India’s infrastructure sector is set to become the country's biggest driver, as it aspires to become a $5 trillion economy soon and a developed nation by 2047.

Higher capex is largely proposed for infrastructure sectors such as roadways, shipping, railways and defence. The capital allocation for these infrastructure-focused ministries has also been substantially increased in the budget, allowing them to complete work under the Vision 2047 plan.

A major portion of capex spending will also go towards defence procurement, including the purchase of aircraft and aero engines, as well as upgrades to the naval fleet. The central capex allocation for ministry of defence (capital outlay defence services) has increased by 17.61% to ₹2.19 trillion (Budget Estimate) in FY27 from ₹1.86 trillion (Revised Estimate) in FY26. Of this, ₹63,733.94 crore will go towards aircraft and aero engines, ₹82,217.82 crore towards other equipment, and ₹25,023.63 crore towards the naval fleet.

Also, the budget proposes establishing an infrastructure risk guarantee fund to ease financing bottlenecks and revive stalled projects.

Mint reported on 29 December about the government's plan for an infrastructure risk guarantee fund of ₹25,000 crore, which may be announced in the Union budget for FY27.

While the capital allocation for the ministry of road transport and highways has increased from ₹2.72 trillion (revised estimate) in FY26 to ₹2.94 trillion in FY27, it has risen from ₹2.52 trillion (RE) to ₹2.78 trillion (BE) for the Railways.

Government capital spending has been on the rise over the past few years, even as private investment remained tepid during the pandemic.

Although private investment gathered some momentum in the current fiscal year, a host of economists suggested hiking government capital spending to help steer the economy through any turbulence, including a feared global slowdown in 2024.

“…the significant increase in capital expenditure to ₹12.2 trillion for FY27, which underscores an unambiguous policy focus on infrastructure, regional development and job creation across the country. This will play a pivotal role in crowding in private investment, enhancing productivity and supporting the growth of tier II and tier III cities as emerging economic hubs,” said Anish Shah, group chief executive officer (CEO) and managing director (MD), Mahindra Group.

For the railways, the additional capex would go toward developing a new East-West dedicated freight corridor and working on seven identified high-speed rail corridors.

“Budget 2026–27 strikes a balance between ambition, growth and discipline. With sustained public capex of ₹12.2 trillion, a clear fiscal consolidation path, and reforms like the Infrastructure Risk Guarantee Fund, it focuses on building long-term productive capacity rather than short-term stimulus. The emphasis on infrastructure, MSME scaling, transport, digital and logistics readiness sends a strong signal that India is investing for durable growth, competitiveness, and investor confidence,” said Vineet Mittal, chairman, Avaada Group.

The proposed infrastructure risk guarantee fund may be set up on the lines of credit guarantee schemes for small businesses. The National Credit Guarantee Trustee Co. (NCGTC) is likely to underwrite development risks for infrastructure projects, allowing banks and financial institutions to lend on easier terms.

The move comes amid rising project delays, cost overruns, and higher borrowing costs that have long constrained investment flows into India's infrastructure sector. Government estimates suggest India needs roughly $2.2 trillion in infrastructure investment by 2030 to sustain its $7 trillion growth ambition.

The risk guarantee fund would cover a portion of loans extended by banks and financial institutions to infrastructure projects for a nominal fee. This would reduce financing risk, enable higher credit flow and allow lenders to take larger exposures. While the guarantee cost would be added to borrowing costs, the impact on lending rates is expected to be minimal.

The higher allocation for MoRTH will go towards the construction of 10,000 km of national highways, including about 3,000 km of access-controlled high-speed corridors. The cumulative length of the high-speed corridor, which stands at just about 3,052 km, is set to be doubled in a single year, a record in such construction so far.

In addition, MoRTH has set a target of attracting private investment of ₹30,000 crore in Public-Private Partnership (PPP) projects in FY27 (30% of total awards for the year), as well as raising ₹30,000 crore through the monetisation of operational national highway assets.