The Indian government is set to significantly diversify its capital expenditure (capex) strategy for the fiscal year 2026. Moving beyond its traditional focus on roads and railways, which currently absorb almost half of the ₹11.21 lakh crore capex budget, the government plans to broaden its investments into urban infrastructure, ports, shipping, and civil aviation.
Shifting Gears: New Priorities for Public Investment
This strategic recalibration stems from a belief that investments in roads and railways might be nearing saturation, or at least requiring longer periods to yield returns after their consistent growth since the COVID-19 pandemic. To ensure continued and broader public investment, the finance ministry is expected to consult with key infrastructure-related ministries, including urban development, shipping, ports, and civil aviation, to identify avenues for increased spending in these emerging priority sectors.
Addressing the Private Capex Puzzle
Simultaneously, the government is looking into why private capital expenditure has remained flat. Official data shows that the private sector’s share of capital formation dropped to about 33% of GDP in FY24 from 37% in FY20, while the government and public sector undertakings’ combined share rose to 25% during the same period.
While global geopolitical tensions and supply chain disruptions are partly to blame, the government aims to uncover any “policy imperatives” needed to spur private investment. The overarching goal is to keep public capex a major economic driver while gradually expanding into sectors that promise long-term economic benefits and can encourage greater private sector participation.
Sector-Specific Outlook:
- Urban Infrastructure: With India’s urban population projected to hit 675 million by 2035 and cities already contributing nearly 60% of the GDP, increased capex here will tackle issues like traffic congestion, housing shortages, and the need for sustainable urban planning. The FY26 Union Budget includes a ₹1 lakh crore Urban Challenge Fund to help cities become growth hubs.
- Ports & Shipping: India’s extensive coastline and strategic location make its maritime sector vital. Programs like the Sagarmala Programme and Maritime India Vision 2030 aim to transform this sector with over $82 billion in planned investments, enhancing infrastructure and operational efficiency. The government also allows 100% FDI in port development and offers tax breaks.
- Civil Aviation: As the world’s third-largest aviation market, India has seen a boom in airports and air travel. The UDAN scheme continues to boost regional connectivity, with plans to build 350 airports by 2047, including 50 more in the next five years. The Maintenance, Repair, and Overhaul (MRO) industry is also a key area for investment.
This revised capex strategy aims to deliver faster, more widespread public investments, fostering long-term economic gains and a more favorable environment for private sector engagement.