Centre’s new capex playbook: Quality over quantity for fiscal consolidation

The 2026-27 capex target of around 3.1-3.2% of gross domestic product (GDP) will nudge the country toward a more measured phase of fiscal consolidation, signalling the government’s intent to balance economic momentum with its fiscal deficit goal amid rising global uncertainties.

The central government may not raise the current capex ceiling substantially, although there will be adequate fiscal headroom next year to continue funding large-scale infrastructure and industrial projects already in the pipeline, said the first person, on condition of anonymity.

“The focus is also on execution efficiency and ensuring that the existing projects yield tangible returns to the economy," the person said.

“Efforts will also focus on streamlining approvals, reducing project delays, and strengthening coordination between the Centre and states to maximize the overall economic impact," the person added.

Private push

Public investment has been the principal driver of growth for the past few years, offsetting tepid private investment and uneven export demand. However, with improving corporate balance sheets and capacity utilization, the Centre is counting on private capex to gradually pick up.

“The idea is to sustain momentum without stretching public finances too thin," said the second person, on condition of anonymity. “Over the next few years, the emphasis is expected to move from sheer scale to strategic depth, ensuring that capital spending creates productive assets, attracts private participation, and strengthens the economy’s long-term capacity, rather than just boosting near-term growth numbers," the person added.

Mint reported on 5 November that India’s policymakers are shifting their focus from expanding the scale of public capex to enhancing its quality and impact, including the use of data analytics and AI-driven tools to track and assess progress.

The report said the government is placing greater emphasis on project execution, transparency, and measurable economic outcomes to ensure that investments deliver tangible gains, such as durable infrastructure, stronger private-sector participation, and higher productivity, rather than merely reflecting larger budgetary outlays.

The country's capex target for 2025-26 stands at ₹11.21 trillion, or about 3.1% of GDP, compared with the previous budget's ₹11.11 trillion, or roughly 3.4% of GDP.

However, the effective capex for the current fiscal year is projected at ₹15.48 trillion, compared to ₹13.18 trillion a year ago, including core capital outlays in the Union budget as well as grants and aid allocated to states for creating capital assets.

With the economy projected to expand by 6.6%-6.8% in 2025-26, according to finance ministry estimates, maintaining capex at around 3.1% of GDP could translate into a modest increase in the absolute outlay for 2026-27, even as the capex-to-GDP ratio remains unchanged.

A finance ministry spokesperson didn’t respond to emailed queries.

“Overall capex, including private spending, grew 7.8% in the June quarter 2025-26. As private sector investment continues to languish, reliance on government capex to drive growth is quite appropriate and should be continued. There is, however, going to be pressure on the fiscal deficit, which was budgeted at 4.4% of GDP in 2025-26," said D.K. Srivastava, chief policy advisor at consulting firm EY India.

"It would be desirable to continue emphasising capex growth even if it involves exceeding the budgeted growth of 10.1%. Some changes may be brought about in the composition of government capex, which tends to be capital-intensive with its focus on physical infrastructure. Perhaps, greater emphasis is needed for more employment-intensive capex that would prospectively absorb skilled labour in AI-linked data centres," he added.

Crucial role

Economists said that with private investment still sluggish and global uncertainties persisting, government capital spending will remain crucial to sustaining demand, generating jobs, and catalysing long-term growth.

“The government has followed Keynesian principles since the covid period through sustained public investment under the National Infrastructure Pipeline. Global experience (such as the US pivot to green infrastructure after the American Recovery and Reinvestment Act) suggests that the next shift should be from ‘more spending’ to ‘better and targeted spending’," said Rumki Majumdar, economist at consulting firm Deloitte India.

India must now prioritize its spending to enhance competitiveness and make the supply chain more resilient, she said. "Investing in building ports to capitalize on its extensive coastline will elevate the country's position in the shipping industry, especially when geopolitical tensions disrupt trade routes. Simultaneously, channelling capital into clean energy will reduce dependence on fossil fuel imports, improve energy security, and align with global sustainability goals," she added.

Rishi Shah, partner and economic advisory services leader at consulting firm Grant Thornton Bharat, said sustained public capital formation, especially during the elevated uncertainty in the global economy, is not merely counter-cyclical spending, but an investment in the foundational conditions for long-term productivity growth.

“Quality investments in logistics corridors, power infrastructure, and urban manufacturing clusters generate positive externalities that compound over decades, not quarters. The Golden Quadrilateral’s economic returns are still accruing twenty years later. These aren’t just demand-side interventions; they are supply-side enablers that reduce doing-business costs economy-wide," he said.

“The question isn’t whether the government should maintain this support; it’s whether the current quantum is sufficient to trigger a self-sustaining private investment cycle. For India to accelerate beyond the current growth projections of 6.5-7% over the next couple of years toward a sustainable 8%, the overall investment rate needs to rise to 35-36% of GDP," he added.