Centre considering climate-friendly sectors as it looks to broaden capex in FY27

Mint

15 hours ago

New Delhi: The Union government is considering expanding the scope of its capital expenditure (capex) in FY27 beyond traditional infrastructure to include emerging, climate-friendly sectors such as renewable energy and green technologies, two people aware of the matter said.
Senior finance ministry officials will meet their counterparts across key ministries in the coming weeks and months to identify investment opportunities in sectors that are both future-ready and growth-supportive.
'The government is keen to sustain the growth momentum through targeted public investment, especially as private sector capex remains uneven," the first person mentioned above said, requesting anonymity.
The person added that broadening the capex could also help align long-term development goals with sustainability imperatives.
Meanwhile, for FY27, the government is likely to maintain its public capex at about 3.1% of GDP, similar to FY26, continuing its emphasis on capital spending as a key driver of economic expansion, the second person said, also requesting anonymity.
"It's not just about boosting short-term growth, but about investing in the kind of infrastructure that will define the country's development over the next decades," the person mentioned above added.
The government aims to sustain economic momentum through strong public investment in infrastructure at a time when private sector capex remains tentative and uneven.
On 30 June, Mint reported that capital spending by large central public sector enterprises (CPSEs) and key infrastructure agencies could exceed ₹8.5 trillion in FY26, the highest in about a decade, following a renewed government push to accelerate investments this fiscal year.
When combined with investments by infrastructure-focussed agencies such as the highways and power ministries, total public capex has more than doubled, from ₹3.11 trillion in FY16 to ₹8.07 trillion in FY25, according to data from the Department of Public Enterprises, under the finance ministry.
The Union budget for FY26 earmarked ₹11.21 trillion for central capital expenditure, about 3.1% of GDP and nearly 10% higher than the revised estimates for FY25.
This includes ₹1.5 trillion in 50-year interest-free loans to states, aimed at sustaining infrastructure momentum and driving economic growth.
The central government, in its Economic Survey 2024-25, projected India's real GDP growth for FY26 to be between6.3% and 6.8%.
The Reserve Bank of India (RBI) also expects India's FY26 GDP growth forecast at6.5%.
With GDP growth likely to meet its target, the Centre will need to raise capex for maintaining a similar nominal GDP growth target for the next fiscal year, with public capex expected at around 3.1% of GDP.
A finance ministry spokesperson didn't respond to emailed queries.
Experts believe the Centre's strategy to maintain capital expenditure at about 3% of GDP, while making directional shifts towards future-ready sectors, is a step in the right direction.
"Directional shifts are also called for as the need for expanding conventional infrastructure like roads and ports would be fulfilled in the near future and given the changing scope of new technologies, public investment would be called for linking of rivers, emphasis on renewable energy including hydro power, space, exploitation of rare earth minerals and artificial intelligence-related infrastructure," said D.K. Srivastava, chief policy advisor at EY.
Srivastava said central capex is expected to remain crucial over the medium to long term and should ideally be financed under the golden rule, allocating all central borrowing towards capital creation, with additional support from non-debt capital receipts.
"Central capex should focus on both maximizing its multiplier effects and filling up shortfalls in new areas of infrastructure, including production of defense capital assets, where private sector investment may not be able to fill up the gap," he added.
Rishi Shah, partner and economic advisory services leader, Grant Thornton Bharat, said the pivot toward climate-friendly capex is economically astute—research shows green spending multipliers are larger than traditional spending.
"This reallocation optimizes public capital efficiency through higher domestic content and labour intensity," he said.
"Given India's $400-billion renewable financing requirement by 2030, strategic government leadership can catalyze private investment through demonstration effects and de-risking," he added.