In a shift from recent years’ aggressive capex-led growth strategy, the Modi 3.0 government has opted for a modest 10.1 percent increase in capital expenditure, setting the outlay at ₹11.21 lakh crore for 2025-26. This aligns with the projected lower nominal GDP growth of 10.1 per cent for the next fiscal year.
The latest capex push pales in comparison to the 22 percent CAGR recorded during FY21-24 and the 27 per cent growth seen between FY19 and FY24—a period marked by heavy infrastructure investments to drive post-pandemic economic recovery.
Capex Growth Falls Short of Expectations
Finance Minister Nirmala Sitharaman’s Budget pegs the Revised Estimate (RE) for 2024-25 at ₹10.18 lakh crore, lower than the ₹11.11 lakh crore initially budgeted. The relatively cautious capex increase for 2025-26 has largely disappointed industry leaders, who were hoping for a 15-25 per cent boost to counter slowing economic growth.
The Indian economy is projected to expand at a four-year low of 6.4 per cent in 2024-25, according to first advance estimates from the Central Statistics Office (CSO).
However, reacting to the capex announcement, FICCI President Harsha Vardhan Agarwal said, ”While the increase in capital expenditure may seem modest compared to previous years, it is still a positive sign. The Budget will re-energise the economy by lifting middle-class sentiment.”
Rumki Majumdar, Economist, Deloitte India, said that government has revised FY25 capex at ₹ 10.18 lakh crore, down from ₹ 11.11 lakh crore. “This year, the Finance Minister is pushing the States to take the onus of building infrastructure,” she said.
Capex as a Share of GDP Unchanged
Despite the muted increase in absolute capex, its share in GDP remains unchanged at 3.4 per cent for 2025-26, economists noted.
Foreign Banks Had Predicted Capex Slowdown
Leading foreign banks and brokerages had anticipated that India’s capital expenditure growth would slip to single digits in FY26, a sharp slowdown from the 22 per cent CAGR seen between FY21-24.
For the current fiscal (2024-25), they estimated capex growth at approximately 6.5 percent, significantly lower than the originally budgeted 17 per cent growth. However, based on the latest RE of ₹10.21 lakh crore, the actual increase stands at 7.4 per cent.
With a tempered capex push, the Budget signals a gradual shift in policy focus—balancing fiscal prudence while maintaining investment momentum and aiding consumption growth. The industry will now watch for private sector participation to sustain long-term growth, said economy watchers.
The story so far
Centre has been on a Capex spending spree in the recent years thereby effectively pulling economic growth to a new trajectory of over 7 percent.
From level of ₹3.3 lakh crore in FY19, capex allocation has compounded at 27 per cent CAGR to the current ₹11 lakh crore allocation. For comparison, the allocation grew at 9 per cent CAGR in the FY14-19 period. The last five years clearly indicate a government spending push. This was aimed at dragging the economy out of Covid blues and putting it on a growth path.
The surge in capital expenditure in recent years signifies a paradigm shift in economic dynamics. From an annual Capex allocation of ₹2.5 lakh crore half a decade ago, the Centre has ramped up spending to ₹11.11 lakh crore annually for 2024-25. States have also bolstered their Capex, albeit with varying degrees of enthusiasm, further fueling the growth trajectory.
The centre has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from ₹5.6 lakh crore in FY15 to ₹18.6 lakh crore in FY24, as per budget estimates. That is a rise of 3.3X. Whether the total length of highways, freight corridors, number of airports, metro rail networks or the trans-sea link, the ramp-up of physical and digital infrastructure in the last ten years is real, tangible and transformative, said economy watchers.
