Unmask the reality of capex to grasp its actual impact

India has justifiably increased its focus on infrastructure development. Both the Union and states have prioritized capital expenditure to foster faster long-term economic growth. Budgeted capital expenditure (capex) of the Centre rose to over 3% of GDP in 2025-26 from 1.7% a decade ago. Over the same period, the share of capex in the central government's expenditure has also doubled, reflecting a clear policy shift.

- SHRUTI GUPTA

India’s capex, however, remains modest compared to other emerging and large economies, even as interest payments on public debt have risen; they now consistently exceed 5% of GDP, indicative of increased pressure on servicing liabilities. State governments contribute more to India’s total spending than the Union—this is also true for capex—with their share at 4.9% of GDP in 2023-24. Their fiscal health and investment quality are critical to the country’s economic growth.

Capex is internationally measured as direct spending on long-term assets and infrastructure. This expenditure is expected to enhance growth. However, the nature of the capex reported in India has changed in recent years. A significant portion of it has been in the form of financial transfers by way of equity infusions and loans to public sector enterprises (PSEs), state governments and other institutions.

Changing delivery channels: More than a decade ago, such financial transfers in capital spending accounted for close to 40% of the Union's capex. By 2023-24, this proportion had gone up to two-thirds. Such capex does not represent direct investment in new infrastructure. Also, since this money was routed through other entities, its ultimate use was not always easy to ascertain.