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The government has raised its capital expenditure by nearly 9% for the upcoming fiscal, targeting INR 12.2 lakh crore to sustain economic growth and modernise infrastructure, especially in Tier 2 and Tier 3 cities. Roads and railways account for almost half of the outlay, aiming to lower logistics costs and improve connectivity. An Infrastructure Risk Guarantee Fund is proposed to boost private developer confidence, while initiatives to enhance domestic construction and infrastructure equipment manufacturing are planned. Experts note that private investment remains crucial to fully meet India's infrastructure needs.
The government has increased its capital expenditure for the next fiscal year to approximately INR 12.2 lakh crore, up from the current year's estimate of INR 11.2 lakh crore, marking a near 9% rise. The move is aimed at sustaining economic momentum and encouraging private sector participation in infrastructure development. Public spending is focused on asset creation in Tier 2 and Tier 3 cities, which is expected to support long-term growth and attract private investment. Advertisement
Over the past decade, government capital expenditure has grown significantly from just INR 2 lakh crore in FY15 to leverage high-multiplier effects for economic growth. Since the pandemic, this outlay has increased sharply to accelerate recovery and counter external economic challenges, including global trade uncertainties. Elevated government spending also aims to partially offset the slower-than-expected broad-based revival in private investments.
A significant portion of the allocation, nearly 50%, is dedicated to roads and railways. The focus on these sectors is intended to reduce logistics costs, improve transportation efficiency, and advance the broader Viksit Bharat agenda. Experts, including Kuljit Singh from EY India, described the budget as an infrastructure budget, reflecting the priority given to physical connectivity and related sectors. Crisil Intelligence notes that while the outlay aligns with expectations, it remains below the estimated 3.5% of GDP required for infrastructure, highlighting the need for accelerated private sector participation and asset monetisation.
The budget proposes setting up an Infrastructure Risk Guarantee Fund, which will provide partial credit guarantees to lenders. This is aimed at strengthening the confidence of private developers during construction and infrastructure development phases. The initiative is expected to help crowd in private capital and support long-term project sustainability.
Additionally, the government plans to enhance domestic construction and infrastructure equipment (CIE) manufacturing. The scheme targets high-value and technologically advanced machinery, including lifts for multi-story buildings, fire-fighting equipment, and tunnel-boring machines for metro and high-altitude road projects. These measures are designed to reduce reliance on imports, promote indigenisation, and lower construction and infrastructure costs.
Experts highlight that these measures will not only modernise logistics and infrastructure but also create an enabling environment for private investment. By combining higher capex with credit risk support and domestic manufacturing initiatives, the government is aiming for a more balanced and resilient investment ecosystem. This approach is intended to support economic growth, job creation, and long-term infrastructure sustainability.
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