New Delhi: The Centre is set to widen the scope of what counts as capital expenditure from FY28 by bringing spending on rehabilitating, retrofitting and upgrading public assets into the government's capex basket, according to two government officials aware of the matter.
The changes are aimed at better reflecting the government's growing investments in productive assets and improving the quality of expenditure reporting. They come as the Centre has continued to rely on public investment as a key driver of economic growth, with annual budgetary allocations for capex rising sharply over the past five years.
The revamped expenditure rulebook will also introduce dedicated expenditure heads for digital equipment and information, and computer and telecommunications (ICT) equipment. This will allow the government to separately account for investments in software, ICT equipment and telecommunications infrastructure, alongside infrastructure assets such as roads, railways, ports, airports, power projects and irrigation systems, said one of the officials cited above. "The core objective is to present a more comprehensive picture of public investment and support the government's infrastructure-led growth strategy," this official added.
Under the revised framework, digital items are treated as revenue expenditure if they cost ₹1 lakh or less, or have a useful life of up to three years. However, ICT equipment—including hardware, telecom gear, and software—must be classified as capital expenditure if it costs more than ₹1 lakh or has a useful life exceeding three years.
The Centre earmarked a record ₹12.22 trillion for capital expenditure Union Budget 2026-27. This is equivalent to 3.1% of GDP, and is around 11.5% higher than the revised estimate of ₹10.96 trillion for FY26.
The revised accounting framework will take effect from FY28, giving ministries and departments time to align their budgeting, accounting and financial management systems with the new expenditure classification.
Queries sent to the finance ministry remained unanswered at the time of publishing.
Asset upgrades
Under the revised framework, expenditure on rehabilitation, overhaul, retrofitting and upgrading public assets will be classified as capital expenditure and booked against the relevant asset category, while routine repair and maintenance will continue to be treated as revenue expenditure.
The revised classification will apply across a broad range of public assets, including roads, bridges, railways, ports, airports, power projects, irrigation systems and other government-owned infrastructure.
Projects that could fall under the revised classification include strengthening and widening highways and bridges, mid-life rehabilitation of railway tracks, locomotives and rolling stock, airport and port modernisation, renovation and capacity enhancement of power plants, refurbishment of irrigation canals and dams, retrofitting government hospitals and public buildings to improve safety and energy efficiency, and major upgrades of water supply and sewerage networks.
Such expenditure extends the productive life, capacity or efficiency of an asset and therefore represents investment rather than consumption, said the second official cited above.
By recognising these outlays as capital expenditure, the government expects to present a more realistic assessment of investments made in modernising public infrastructure rather than only creating new assets, the official added.
Ranen Banerjee, partner and leader, economic advisory, PwC India, said, “As per accounting practices in the private sector, when an asset is replaced or major overhaul is undertaken, such expenditure is capitalised and then depreciated over its life. Given government accounts are on cash basis, expenditure is accounted only in the year it is spent and there is no provision of depreciation. Hence, to reflect the true extent of capex being done, it is fair to include expenditure on major retrofitting, rehabilitation and significant upgrading of assets. Routine operation and maintenance should, however, remain outside the capex basket, with clear guidelines to prevent overstatement.”
Digital focus
The introduction of dedicated expenditure heads for digital equipment and ICT equipment reflects the government's growing investment in digital governance and technology infrastructure to deliver public services, implement welfare programmes and facilitate financial transactions. Initiatives such as the Digital India programme, Unified Payments Interface (UPI), direct benefit transfer (DBT), DigiLocker and other digital public infrastructure are becoming integral to governance, and the new accounting structure will allow policymakers to monitor investments in digital and ICT assets separately.
Abhash Kumar, assistant professor of economics at Delhi University, said, "As public service delivery becomes increasingly digital, the revised framework is expected to improve transparency in technology-related public spending and facilitate better-informed policy decisions.”
“As government investment in proprietary software, hardware and digital infrastructure rises, treating such spending as capex will better reflect the scale of public asset creation,” Banerjee of PwC India said.