According to a report by Elara Securities, the government is shifting its capital expenditure (capex) priorities from traditional sectors like roads to focus on key areas such as water supply, sanitation, digital infrastructure, urban development, and irrigation. This strategic change highlights the government’s growing emphasis on improving essential public services and fostering long-term sustainability. By redirecting resources toward these sectors, the government aims to address critical infrastructure gaps, enhance urban living standards, and promote digital transformation. The shift reflects a broader vision to ensure holistic development across the country, prioritizing both economic growth and social well-being.
What Does The Elara Report Reveal?
The report has analysed 18 state budgets announced so far, shows that capital outlay growth is expected to slow down to 15.9% year-on-year (YoY) in the Budget Estimates (BE) for FY26. This marks a moderation compared to the average growth rate of 23.4% over the past two years. A similar trend is evident in the Union Budget for FY26, which also indicates a slower pace of capex growth. This shift reflects a more cautious approach in government spending, signaling potential changes in fiscal strategy, and suggests a more measured pace of infrastructure investment moving forward.
It said, “Increased focus on sectors such as Water Supply and Irrigation away from Roads indicates a shift in government priority.”
The report stated that the budget allocation for transport is projected to grow by just 3.2 per cent YoY in FY26BE, a sharp decline from the 18.3 per cent average growth recorded in the past four years.
Here Are The Allocation According To Reports
Allocations for water supply and sanitation are set to rise by 33.54% YoY. Similarly, irrigation will see a 19.56% increase. This marks a notable jump from the growth rates of 8.03% and -1.32% YoY, respectively, in the Revised Estimates (RE) for FY25.
Despite the shift in spending priorities, the capital outlay as a percentage of Gross State Domestic Product (GSDP) has remained stable at 2.8 per cent in FY26BE, slightly higher than 2.7 per cent in FY25RE. However, spending remains a challenge, with only 54.3 per cent of the revised estimates for FY25 spent by January of this financial year.
This raises concerns about whether the full target will be met. Historically, there has been an average deviation of 13.5 per cent between revised estimates and actual spending, with a shortfall of 14 per cent recorded in FY24.
The report suggested that this shift in capex focus will create new opportunities for diversified infrastructure companies. Increased investments in water supply, sanitation, digital infrastructure, urban development, and irrigation are expected to drive fresh order inflows for companies operating in these sectors.
(With Inputs From ANI)
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