Govt Shifts Capex Focus: More Funds For Water, Sanitation And Digital Infra

The government is shifting its capital expenditure (capex) priorities from traditional sectors like roads to areas such as water supply, sanitation, digital infrastructure, urban development, and irrigation, according to a report by Elara Securities.

The report, which analysed 18 state budgets announced so far, also indicated that the growth of capital outlay is expected to slow down to 15.9% year-on-year (YoY) in the Budget Estimates (BE) for FY26. This is a moderation compared to the average growth of 23.4% in the past two years. A similar trend was also observed in the Union Budget for FY26, which suggested a slower pace of capex growth.

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% YoY in FY26BE, a sharp decline from the 18.3% average growth recorded in the past four years.

What Else For Govt’s Capex?

Meanwhile, allocations for water supply and sanitation are set to rise by 33.54% YoY, while irrigation will see a 19.56% increase. This is 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% in FY26BE, slightly higher than 2.7% in FY25RE. However, spending remains a challenge, with only 54.3% 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% between revised estimates and actual spending, with a shortfall of 14% 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.

ALSO READ: India’s $1.4 Billion Boom: Foreign Investors Crown It Asia’s Hottest Market This Week!