As India prepares for the Union Budget 2026, a significant boost in infrastructure spending is expected to underpin the nation's ambition to rank among the world's top economies. The government's growth strategy hinges on substantial capital investment to attract private participation and enhance domestic competitiveness amidst global trade uncertainties.

Ambitious Infrastructure Targets

The FY 2025-26 budget already allocated a considerable ₹50.7 trillion (approximately $603 billion) in total expenditure, with infrastructure and construction receiving a major share. Capital expenditure (capex) was forecasted at ₹11.21 lakh crore, a 10% increase from the previous year's revised estimates, representing a rise from 13% in FY 2018-19 to 22% in FY 2025-26. This commitment is evident in the Ministry of Road Transport and Highways, which accounts for 24% of the total capex, and the Ministry of Housing and Urban Affairs, commanding 80% of social sector capex. For the fiscal year 2025/2026, India has set capital expenditure at Rs 11.21 lakh crore ($129.4 billion), which is 3.1% of India's GDP for the period.

Focus on Key Areas

Budget 2026 is expected to maintain a strong emphasis on public capital expenditure, especially in infrastructure, logistics, industrial corridors, and energy systems. These investments are considered critical for reducing transaction costs, improving supply-chain efficiency, and supporting private investment. Improvements in ports, transport networks, power availability, and digital infrastructure directly affect competitiveness, delivery timelines, and cost structures for manufacturing firms and exporters.

Growth Projections and Policy Support

Multiple organizations have offered optimistic growth forecasts for India. Crisil raised its GDP forecast to 7.0% for fiscal 2026, citing robust growth in the first half of fiscal year 2026 and anticipating strong domestic consumption. The Asian Development Bank (ADB) also increased India's FY26 real GDP growth forecast to 7.2%. The Reserve Bank of India (RBI) has also revised its FY26 real GDP growth to 7.3%. Mastercard Economics Institute (MEI) suggest India's economic growth will stabilize closer to its long-term trajectory in 2026, with real GDP growth expected to moderate to 6.6 per cent, while inflation is forecast to rise to 4.2 per cent.

The government is expected to continue heavy spending on roads, railways, airports, housing, and logistics networks, which will boost employment, construction demand, and economic growth. Increased budget allocations for smart cities, transport corridors, and urban development may bring strong growth potential for infrastructure companies. The Union Budget 2025-26 includes continuation of a 50-year interest-free loan for states' capital expenditure, with an enhanced outlay of Rs. 1.5 lakh crore.

Reforms and Expectations

The Confederation of Indian Industry (CII) has proposed reforms for the forthcoming Union Budget 2026-27 to drive sustained investment growth and maintain India's momentum as one of the world's fastest-growing major economies. Key expectations for the budget include higher government spending on infrastructure, with a proposed rise in central capital expenditure and more financial support to states, along with the launch of a new National Infrastructure Pipeline. The CII has also called for tax incentives and compliance relief for companies that make fresh investments, expand production or increase tax contributions, especially in high-growth sectors such as clean energy, electronics, semiconductors and logistics.

Urban Infrastructure and Modernization

The expansion of national infrastructure includes new sectors such as electric mobility and green energy, along with urban modernization. The government is also simplifying the tax system and promoting environmental initiatives through investments in clean energy, including renewable energy infrastructure such as wind, solar, and green hydrogen projects. With better policies, smarter technologies, and wider public adoption, 2026 could be the year automated parking becomes not just a mobility solution, but a defining component of India's urban identity.

Challenges and the Way Forward

Despite these positive projections, India faces external headwinds, including tariff disruptions and trade uncertainty. Elevated tariffs in the United States could pose risks to labor-intensive sectors such as textiles, gems, and jewellery, while stricter immigration policies may affect the IT services industry. To mitigate these challenges, progress on the ongoing US–India Bilateral Trade Agreement will be closely watched in 2026.

The Indian government is also expected to reinforce its flagship initiatives, such as Make in India, Aatmanirbhar Bharat and the long-term vision of Viksit Bharat 2047, through targeted fiscal and policy interventions. Experts anticipate prioritization of high-quality capital expenditure in logistics, renewable energy, and industrial corridors to boost productivity, along with expanding state participation in national infrastructure pipelines and improving infrastructure project execution with time-bound clearances.