Capex allocation rises for the 11th straight year as government keeps public investment at the core of its growth strategy
While presenting her ninth Union Budget on Sunday, Finance Minister Nirmala Sitharaman announced a capital expenditure (capex) allocation of ₹ 12.2 lakh crore for FY27, highlighting the government’s continued reliance on public investment to drive economic growth.
The FY27 capex outlay represents a 9 per cent increase over the ₹11.21 lakh crore provided in FY26 (Budget Estimates), even as the government remains committed to its fiscal consolidation roadmap.
Capital expenditure refers to government spending on building, acquiring, or upgrading long-term assets such as roads, railways, ports, defence infrastructure, and urban facilities. Such spending is widely seen as having a strong multiplier effect on the economy, crowding in private investment, generating employment, and boosting medium-term productive capacity.
Capital spending has emerged as the cornerstone of the Centre’s growth strategy over the past decade. Total capex through the Union Budget has increased steadily from ₹2.5 lakh crore in FY16 to ₹11.21 lakh crore in FY26. Effective capital expenditure has increased from ₹14 lakh crore to ₹17.1 lakh crore in FY27.
The capex allocation constitutes 3.1 per cent of GDP. However, effective capex that includes grants-in-aid for creation of assets makes up 4.4 per cent of GDP.
As a share of gross domestic product (GDP), effective capital expenditure stood at 5.5 per cent in FY26. The Modi government has repeatedly highlighted the strong multiplier effect of capital expenditure. Responding to the budget debate in FY23, Sitharaman had noted that every ₹1 spent on capex generates a multiplier impact of ₹2.45 in the same year, rising to ₹3.14 in the subsequent year.
Economists have consistently flagged public capex as a key stabiliser for the economy, particularly at a time when global growth remains uneven and private investment is yet to fully regain momentum. Higher government spending on infrastructure is expected to support domestic demand, improve logistics efficiency, and strengthen India’s investment cycle.
However, the key beneficiary sectors of sustained capital expenditure include roads and highways, railways, defence, urban infrastructure, logistics, and renewable energy, with spillover benefits across manufacturing and services.
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Rajat Mishra leads business news coverage at Firstpost.com. An award-winning business journalist with over seven years of experience, he has worked across some of India’s leading newsrooms. His reporting spans the macroeconomy, financial markets, and India Inc., with a keen focus on decoding complex data and trends for readers.
An alumnus of the AJK Mass Communication Research Centre, Jamia Millia Islamia, Rajat can be followed on X at @RajatMishra9518. For story ideas and pitches, he can be reached at Rajat.Mishra@nw18.com. When not tracking numbers and policy moves, he enjoys wandering the Himalayas and exploring society beyond spreadsheets.
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