Analysts expect continuity in public investment as the government shifts focus from demand support to supply-side growth.
As Finance Minister Nirmala Sitharaman prepares to present Union Budget 2026 on February 1, expectations are building around continuity in the government’s capital expenditure-led growth strategy, alongside a sharper pivot towards supply-side reforms to revive private investment. Capital expenditure is nothing but expenditure by the government in building physical assets like road, bridges, flyovers, airports, etc.
In an exclusive conversation with Firstpost, Rumki Majumdar, Director and Economist at Deloitte, said government capex will continue to shoulder the growth burden as private capital expenditure remains subdued.
“Capex will always be something the government will fall back on as long as private capex doesn’t pick up,” Majumdar said. “India still has a lot of catching up to do—highways, state roads, and metros have seen focus, but we still need ports, urban development, and more railway investments to support the pace of growth we are seeing.”
Majumdar expects broad continuity in the budget’s framework, noting that infrastructure spending has been a consistent policy anchor in recent years.
However, she flagged a shift in emphasis this time, from demand stimulation to strengthening the supply side of the economy.
“In the last couple of years, the focus was largely on demand—through infrastructure spending, tax cuts, and monetary support,” she said. “This time, the government is likely to pivot towards supply-side improvements, ease of doing business, exports, MSME reforms, and customs rationalisation.”
She added that reforms aimed at MSMEs, faster clearances, and streamlined processes could be critical to attracting foreign investment. “If India wants to bring in global capital, ease of doing business has to improve further, and supply-side mechanisms have to work better,” Mazumdar said.
On fiscal discipline, Mazumdar said the government is unlikely to deviate from its consolidation path, even as it balances growth priorities. She highlighted the steady reduction in fiscal deficit over recent years, from 9.2 per cent during the pandemic to an estimated 4.4 per cent this year, as a key signal to investors.
“The government has been very careful on fiscal spending so far,” she said. “Maintaining confidence that the fiscal deficit is under control is extremely important. Any major slippage could spook investors and lead to capital outflows, which India would want to avoid.”
While acknowledging that lowering the deficit further will be challenging amid tax cuts and exemptions, Mazumdar said meeting the existing target remains achievable through prudent spending and potential support from disinvestment and privatisation.
“Bringing the deficit down further will be difficult, but meeting the target is important to signal stability,” she said, adding that rationalisation of expenditure across schemes may also be considered.
Overall, Budget 2026 is expected to reinforce the government’s long-term growth narrative anchored in public capex, fiscal prudence, and a renewed push to unlock private investment through supply-side reforms.
End of Article
