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India's Fiscal Shift: Capital Expenditure Drives Growth, Hits 32% of Budget

India's fiscal strategy has deliberately shifted towards capital-led growth over the past decade, with the FY27 budget reinforcing this trajectory. Capital expenditure and grants now constitute over 32% of the total budget, up from about 21-22% in FY16, emphasizing sustained public investment. The government targets a fiscal deficit of 4.3% of GDP for FY27 while projecting nominal GDP growth of 10.1%, balancing growth support with fiscal consolidation. Key sectors like Defence, Railways, and Road Transport receive focused investment, alongside policy support for electronics, energy transition, and financial markets.

Key Points: India's Capex-Led Growth Strategy: FY27 Budget Analysis

  • Capex share rises to 32% of budget
  • Fiscal deficit target set at 4.3% of GDP
  • Debt-to-GDP ratio on declining path
  • Focus on Defence, Railways, Road Transport
2 min read

India's expenditure mix oriented towards capital-led growth: Report

India's expenditure mix shifts to capital-led growth, with capex at 4.4% of GDP. FY27 budget targets fiscal consolidation and infrastructure investment.

"On the expenditure side, capital expenditure remains the central policy lever. - OmniScience Capital Report"

New Delhi, Feb 5

India's fiscal strategy has undergone a clear and deliberate shift over the past decade, with the expenditure mix increasingly oriented towards capital-led growth, according to a new report.

Notably, the FY27 Budget reinforces this trajectory, reflecting the government's conviction that durable growth, private investment crowding-in, and macroeconomic stability are best achieved through sustained public capital formation rather than short-term fiscal stimulus.

As a result, capex and grants now account for over 32 per cent of the total budget in FY27 (BE), up from around 21-22 per cent in FY16, said OmniScience Capital in its report.

Nominal GDP for FY27 is projected to grow by 10.1 per cent, with the economy estimated at Rs 393 lakh crore, while the fiscal deficit target has been set at 4.3 per cent of GDP, underscoring continued commitment to fiscal consolidation alongside growth support.

The note highlights that the government's focus has increasingly shifted towards debt sustainability, with the debt-to-GDP ratio expected to decline from 56.1 per cent in FY26 to 55.6 per cent in FY27 and targeted to glide towards 50 per cent by FY31.

"On the expenditure side, capital expenditure remains the central policy lever. Direct capex is budgeted at Rs 12.2 lakh crore in FY27, reflecting 11.5 per cent YoY growth, while total public capex including grants rises to Rs 17.14 lakh crore, a 22.1 per cent increase over FY26 (RE)," said the report.

This places overall capex at 4.4 per cent of GDP, reinforcing the infrastructure-led growth framework.

Sector-wise, the report highlights continued prioritisation on key growth vectors - Defence, Railways, and Road Transport -- which together account for 67.6 per cent of total budgeted capex.

Beyond core infrastructure, "policy support remains strong for electronics, energy transition, and financial markets, with initiatives such as the India Semiconductor Mission 2.0, enhanced incentives for electronics components manufacturing, targeted measures to deepen bond markets, and renewed thrust on decarbonisation and clean energy supply chains," the report noted.

- IANS

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Reader Comments

P
Priya S
Good to see the fiscal discipline with deficit targets. But I hope this capital expenditure actually reaches the ground level. Sometimes funds get stuck in bureaucracy. The 50% debt-to-GDP target by FY31 is ambitious but necessary for stability.
R
Rohit P
Defence, Railways, Roads getting 67% of capex makes sense. We need strong borders and modern infrastructure. The Vande Bharat trains and new highways are visible progress. Hope the semiconductor mission reduces our import dependence.
S
Sarah B
As someone working in renewable energy, the thrust on decarbonisation is very welcome. Building clean energy supply chains is crucial for both the environment and creating future-proof jobs. The numbers look promising.
K
Karthik V
Respectfully, while capex is great, what about health and education spending? A nation's true capital is its healthy, educated people. I hope the grants component includes significant allocations for these social sectors as well. Balanced growth is key.
M
Michael C
The shift from 21% to 32% of budget towards capex in a decade is a massive change. It shows a clear policy direction. If this crowds in private investment as intended, it could create a sustainable growth cycle. The bond market measures are also important for funding.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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