Government Capex Likely to Cross ₹12 Lakh Crore in FY27: What It Means for Growth, GST, and the Economy
New Delhi: Capital expenditure (capex) by the central government is expected to cross ₹12 lakh crore in the Union Budget for FY 2026–27, marking a year-on-year increase of around 10 per cent, according to a recent report by the State Bank of India (SBI).
If realised, this would reinforce the government’s sustained focus on infrastructure-led growth at a time when the global economy is facing rising uncertainty, geopolitical fragmentation, and mounting debt pressures.
What Is Capital Expenditure and Why Does It Matter?
Capital expenditure refers to government spending on long-term assets that enhance the economy’s productive capacity. This includes investments in highways, railways, ports, power projects, urban infrastructure, digital networks, and public assets.
Unlike revenue expenditure, which supports day-to-day operations, capex creates assets that deliver economic returns over many years. Economists widely regard capex as one of the most effective tools for stimulating growth and generating employment.
Infrastructure Push to Drive Jobs and Growth
According to the SBI report, higher capex in FY27 would enable the government to step up investments in large infrastructure projects across transport, logistics, and energy sectors. These investments have a strong multiplier effect — they create direct jobs, support allied industries such as cement and steel, and crowd in private investment.
The report also highlights that India’s economic recovery after the pandemic has been stronger than its rebound following the global financial crisis, underlining the role of public investment in stabilising growth.
Capex Trend: A Decade of Expansion
Government-led capital spending has risen sharply over the past decade:
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Budgetary capex increased from ₹2.5 lakh crore in FY16 to ₹11.2 lakh crore in FY26
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Grants for creation of capital assets rose from ₹1.3 lakh crore to ₹4.3 lakh crore over the same period
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Capital spending by Central Public Sector Enterprises (CPSEs) stood at ₹4.3 lakh crore in FY26
When budgetary capex, grants, and CPSE investments are combined, effective capital expenditure reached nearly ₹15.5 lakh crore in FY26, demonstrating the scale of the government’s infrastructure push.
Impact on GDP Growth
Higher capital expenditure has a direct and lasting impact on GDP growth. Infrastructure spending improves productivity, reduces logistics costs, enhances competitiveness, and supports long-term economic expansion.
For FY27, the SBI report expects nominal GDP growth of around 10.5–11 per cent, factoring in possible upward pressure on wholesale prices due to international commodity trends. Strong public investment is expected to remain a key pillar supporting this growth trajectory.
How Capex Impacts GST Collections
Government capex also has a positive ripple effect on Goods and Services Tax (GST) revenues:
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Infrastructure projects increase demand for raw materials, machinery, and services
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Higher economic activity boosts consumption and business transactions
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Improved logistics and connectivity support formalisation and compliance
As a result, capex-driven growth helps broaden the tax base and stabilise GST collections over time.
Fiscal Discipline Remains in Focus
Despite the expansion in spending, the report underscores the importance of fiscal prudence. It expects the fiscal deficit to moderate to around 4.2 per cent of GDP in FY27, although changes in the GDP series could affect the final calculations.
Net central government borrowing for FY27 is projected at ₹11.7 trillion, with repayments of ₹4.87 trillion, while states are expected to undertake gross borrowings of ₹12.6 trillion. To manage these borrowing needs, the Reserve Bank of India may need to step up open market operations, the report notes.
Boosting Savings and Structural Reforms
The SBI report also calls for measures to boost financial savings, including rationalising tax treatment on bank deposits and increasing thresholds for tax deducted at source (TDS). It recommends reforms in GST administration, insurance, pensions, and state-level debt management to strengthen the overall fiscal framework.
The Bigger Picture
As global economic conditions remain uncertain, India’s continued emphasis on capital expenditure reflects a strategic shift toward asset-building, long-term growth, and economic resilience. A capex figure crossing ₹12 lakh crore in FY27 would not only signal policy confidence but also reinforce infrastructure as the backbone of India’s growth story.