Central Government: India’s central government is expected to significantly expand its capital spending over the next few years, with total capital expenditure likely to exceed Rs 12 lakh crore in the financial year 2026–27, according to a recent assessment by the State Bank of India. The projected increase represents an annual growth of about 10 percent, underscoring the government’s continued emphasis on infrastructure investment as a driver of economic growth.
The report points to a clear and consistent rise in public capital expenditure over the past decade. Government spending on assets such as roads, railways, and other infrastructure has steadily increased, reflecting a policy focus on strengthening long-term productive capacity rather than short-term consumption support. SBI noted that this trend signals sustained commitment to development-led growth.
Official budget data referenced in the report highlight how capital expenditure through the Union Budget has expanded substantially. In FY16, budgeted capital spending stood at Rs 2.5 lakh crore. By FY26, this figure had climbed to Rs 11.2 lakh crore, based on Budget Estimates. This sharp rise illustrates how capital outlays have become a central pillar of fiscal strategy in recent years.
Alongside direct spending, grants allocated for the creation of capital assets have also increased markedly. These grants grew from Rs 1.3 lakh crore in FY16 to Rs 4.3 lakh crore in FY26. The increase suggests stronger financial support for asset development not only at the central level but also across states and local bodies, enabling broader participation in infrastructure expansion.
Capital expenditure by Central Public Sector Enterprises continues to play an important role in the overall investment picture. In FY26, CPSEs spent Rs 4.3 lakh crore using internal resources and extra-budgetary funding. When combined with budgetary capital expenditure and grants for asset creation, effective capital spending reached Rs 15.5 lakh crore during the year, highlighting the scale of public sector-led investment activity.
Taking all components together—budgetary expenditure, grants for capital assets, and CPSE investments—the report estimates that total capital expenditure rose from Rs 7.0 lakh crore in FY16 to Rs 19.8 lakh crore in FY26. This near threefold increase over a decade reflects a structural shift in public finances toward higher capital formation.
Despite the absolute rise in spending, capital expenditure has also remained robust as a proportion of economic output. In FY26, total capital outlays were estimated at around 5.5 percent of GDP, indicating that infrastructure-led growth remains a key policy priority even as the economy expands.
On the financing side, SBI projects that net central government borrowing in FY27 could be about Rs 11.7 trillion, accounting for nearly 70 percent of the fiscal deficit. Total repayments are estimated at Rs 4.60 trillion, including a potential Rs 1 lakh crore buyback of government securities and debt switches worth around Rs 1.5 trillion.
At the state level, gross borrowings are expected to reach Rs 12.6 trillion in FY27, with repayments estimated at Rs 4.2 trillion. The report notes that reforms aimed at rationalizing State Development Loans could help reduce net state borrowings over time. It also suggests that the central government may manage its borrowing requirements through increased issuance of treasury bills.
SBI cautioned that the upcoming Union Budget will be presented against a backdrop of heightened global uncertainty. Shifting geopolitical alignments and volatility in international financial markets have increased risks, particularly as equity and bond markets remain sensitive to changes in investor sentiment.
The report also raised questions about the outlook for crude oil prices, noting the possibility that oil could move out of its current supply-driven stability and briefly align with broader commodity price increases. Any such movement, even if temporary, could have implications for inflation and fiscal planning.
The Union Budget for 2026–27 is scheduled to be presented on Sunday, February 1.
