The Centre plans to double down on incentives to increase the pace of capital expenditure (capex) by betting on urban sanitation and shipping to drive infrastructure spending in FY26 while also scouting for new sectors to maintain the momentum going ahead, government sources told Moneycontrol.
It aims to continue increasing the allocation for capex in the upcoming year as well given that private investment is yet to rebound significantly, one of the sources said.
"We (central government) will continue the momentum on capex, we will increase it, and in increasing it we will see where more can be done in which sectors," this source said.
The effective capital expenditure is projected at Rs 15.48 lakh crore for the current fiscal year. This includes Rs 11.21 lakh crore of the Centre’s capex target, almost flat versus the initial estimate of Rs 11.11 lakh crore for 2024-25.
The Centre’s capex reached Rs 2.21 lakh crore in the first two months of FY26, accounting for nearly 20 percent of the full-years target and registering a staggering growth of 54.12 percent on-year.
According to a second source, the Centre has spent close to Rs 2.5 lakh crore in the first three months of the current financial year on capex.
This source added that ministries have been asked to prepare comprehensive reports as early as next month, to ensure timely capex spending especially given that spending typically slows down during monsoon seasons.
"Historically mid-June to mid-October are monsoon months in India when the speed of execution of new infrastructure projects slows down, thereby new projects are also not awarded to avoid a jump in raw material prices after the monsoon season," this source said.
The push to increase the pace of capex and expanding to more areas comes at a time when there are concerns that the central government has hit the ceiling on spending on infrastructure projects and therefore requires states and the private sector to step in.
"We have been relying on road and railways as big drivers for capex. We are doing an assessment on the data to figure out how much more the ministries can do. And see what are the new areas, the new agencies which would have built up a pipeline because the focus on capex has been there since covid year," the first source cited above said.
Possible areas that could drive capex in the short-term include ports and shipbuilding as well as urban sanitation, specifically India’s sewage waste infrastructure.
"One is ports and shipping. We have to see the absorption capacity and where they have reached on it in the last five years and how much room do they have to scale up. And another area is urban infrastructure, because that is an area which may have absorption capacity and scope," the first source added.
The Ministry of Housing and Urban Affairs’ special urban legacy waste remediation programme expected to be implemented next month, targeting the cleanup of 44-percent of legacy (dumpsite) waste in urban areas within one year, is also part of the efforts to prop up spending on capex.
The scheme focusses on reducing legacy waste and increasing the waste processing capacity by providing incentives for setting up solid waste treatment plants under this programme.
Relying on roads
Even as the government is expanding its search for new drivers of capital expenditure, it will continue to rely on roads as one of the main levers of infrastructure spending, sources said.
"I think we have to do a bit of both to keep up the levels, because right now we also have to stick to the sectors which have large absorption capacity, roads still have large capacities, we can still make more roads by focussing on connectivity," the first source said.
The Ministry of Road Transport & Highways will soon start ranking states on parameters of ‘ease of land acquisition’ with the aim to fix delays during the pre-construction and the project execution stages as delay in getting the required land remains the biggest roadblock for national highway and expressway projects, sources said.
These sources told Moneycontrol that the ranking will help the Centre in prioritising projects in those states that take less time to make land available for construction.
"While the parameters of the ranking are being worked out. One of best possible parameters is — time taken for making around 90-percent land available from the date of approval of a national highway project," a third source said.
The road ministry’s move gains importance considering that in the past couple of years, highway-owning agencies, including NHAI and NHIDCL, have de-scoped works in around 20-percent projects to give completion certificates due to want of land.
There have also been instances of NHAI terminating contracts after awarding them for non-availability of land.
"The details of the past five to six years can be a reference point to rank states. However, considering that there has been a trend of the Centre announcing and approving more national highway projects in poll-bound states, it remains to be seen how strictly such a norm will be followed. This must be tried with all sincerity," the third source added.
To be sure, since land is a state subject, the Centre is almost fully dependent on state governments for getting the required land parcels.
As part of the Budget for 2025-26, MoRTH got an allocation of Rs 2.72 lakh crore for the current fiscal while the housing ministry was provided Rs 37,623.38 crore to spend on infrastructure projects.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
