India’s fiscal strategy has notably shifted towards capital-led growth in the past decade, as per a recent report. The FY27 Budget further solidifies this direction, emphasizing sustained public capital formation for durable growth and macroeconomic stability. Capital expenditure and grants now represent over 32% of the total budget in FY27, a significant increase from around 21-22% in FY16, according to OmniScience Capital.
The report projects a 10.1% growth in nominal GDP for FY27, reaching Rs 393 lakh crore, while setting the fiscal deficit target at 4.3% of GDP. This underlines the government’s commitment to fiscal consolidation alongside supporting growth. The focus has shifted towards debt sustainability, with the debt-to-GDP ratio expected to decrease from 56.1% in FY26 to 55.6% in FY27, aiming to reach 50% by FY31.
Highlighting capital expenditure as a key policy lever, the report notes a budgeted direct capex of Rs 12.2 lakh crore in FY27, reflecting an 11.5% year-on-year growth. Total public capex, including grants, is set to rise to Rs 17.14 lakh crore, a 22.1% increase over FY26. This reinforces overall capex at 4.4% of GDP, supporting an infrastructure-led growth framework.
The report emphasizes the government’s continued focus on key growth sectors like Defence, Railways, and Road Transport, which collectively represent 67.6% of the total budgeted capex. Additionally, policy support extends to areas such as electronics, energy transition, and financial markets, with initiatives like the India Semiconductor Mission 2.0 and measures to deepen bond markets and promote decarbonization and clean energy supply chains.
