Prepared under Chief Economic Advisor V. Anantha Nageswaran, the Economic Survey FY26 notes a sharp rise in capital spending. The share of capex in total central expenditure increased from about 12.5% in FY20 to 22.6% in FY25. Effective capital expenditure as a share of GDP also rose from nearly 2.6% to 4%.

The survey points out that while States face pressure from rising revenue expenditure, the Centre has encouraged capital spending through the Special Assistance to States for Capital Expenditure scheme. As a result, States have maintained capex at around 2.4% of GDP.

Markets have responded positively to fiscal discipline. Sovereign bond yields have declined, and spreads over U.S. bonds have more than halved. Credit rating agencies have also rewarded this approach. S&P upgraded India’s rating to BBB, while CareEdge Global assigned a BBB+ rating.

The fiscal deficit fell from 9.2% of GDP in FY21 to 4.8% in FY25 and now targets 4.4% in FY26, reflecting improved expenditure quality.

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