India is poised to significantly increase its infrastructure spending in the upcoming Union Budget 2026, with projections indicating that expenditures may surpass INR 12 lakh crore in the financial year FY27. This represents an increase of nearly 10% compared to the current fiscal year. The government’s commitment to infrastructure reflects a strategic focus on fostering long-term economic growth, as highlighted in a recent report by the State Bank of India.
The report, released ahead of the Union Budget announcement scheduled for February 1, 2026, emphasizes that infrastructure development is integral to India’s economic strategy. Despite ongoing global uncertainties, the government appears determined to maintain robust capital expenditure levels as a means to stimulate growth.
Growth in Capital Expenditure
Data from government sources indicates a remarkable rise in capital spending over the past decade. In FY16, central government capital expenditure was recorded at INR 2.5 lakh crore. By FY26, this figure had increased to approximately INR 11.2 lakh crore according to budget estimates. Such consistent growth reflects substantial investments in essential sectors, including roads, railways, power, housing, and urban development.
Support for asset creation has also seen a notable uptick. Grants allocated for developing capital assets surged from INR 1.3 lakh crore in FY16 to INR 4.3 lakh crore in FY26. These funds are crucial for states and public entities to construct vital infrastructure such as roads, bridges, and educational facilities. Additionally, Central Public Sector Enterprises contributed to this growth, with expenditures of about INR 4.3 lakh crore in FY26 through their own resources and borrowings.
Projected Spending and Economic Impact
The effective capital expenditure reached an impressive INR 15.5 lakh crore in FY26. Overall government capital spending from all sources rose from INR 7 lakh crore in FY16 to nearly INR 19.8 lakh crore in FY26. This spending accounted for around 5.5% of the GDP in FY26, underscoring its significance within the economy.
For FY27, there are expectations of increased funding directed towards roads, highways, railways, urban transport, renewable energy, and digital infrastructure. Improvements in transportation networks aim to reduce travel times and lower logistics costs, while urban projects are intended to enhance the quality of life in cities. Investments in energy and digital initiatives are anticipated to bolster future economic growth.
On the financing side, the SBI report estimates net central government borrowing will reach INR 11.7 trillion in FY27, contributing significantly to the fiscal deficit. Repayment obligations are projected at around INR 4.6 trillion. Concurrently, state governments are expected to borrow approximately INR 12.6 trillion, with repayments nearing INR 4.2 trillion.
While global risks persist, with volatility in oil prices and fluctuations in international markets potentially impacting government finances, infrastructure spending remains a critical strategy to support job creation, stimulate demand, and encourage private investment. The anticipated rise in infrastructure spending to exceed INR 12 lakh crore in FY27 illustrates the government’s steadfast belief that infrastructure development is a cornerstone of India’s growth narrative.
