India’s expenditure mix oriented towards capital-led growth: 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.