By Dr. Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital

India’s Union Budget 2025 has sparked a debate on the balance between boosting consumption and prioritizing capital investments. While the tax relief measures announced have gained public attention, a deeper analysis reveals that the real driver of economic growth lies in the government’s focus on infrastructure and long-term capital expenditure (Capex).

Consumption Gains Momentum
One of the most notable highlights of Budget 2025 was the increase in the zero-tax slab from INR 7 lakh to INR 12 lakh. This measure is expected to result in approximately INR 1 lakh crore of revenue foregone by the government. With this tax relief, an estimated 30%-40% of India’s total households, the one’s in the middle class, will have additional disposable income, potentially leading to an increase in spending on consumer goods, travel, automobiles, and real estate.
Economists predict that this move could spur a consumption boom, reinforcing demand in sectors such as affordable housing, consumer durables, and tourism. Additionally, some of this newfound liquidity may flow into the financial markets, further boosting investments and economic activity.

Capex: The Silent Growth Engine
Despite the emphasis on tax relief and consumption, the budget allocates a staggering INR 16 lakh crore (~$180 billion) to capital investments, which is 16 times higher than the revenue loss from tax cuts. The capital expenditure allocation for 2025-26 has grown by 18% from the previous year’s revised estimates.
The primary focus areas for capital investments include:
• Defence – INR 2.1 lakh crore
• Railways – INR 2.8 lakh crore
• Roads and Highways – INR 2.8 lakh crore
• Housing & Urbanization – INR 2 lakh crore
• Power Sector – INR 42,000 crore
The government’s Capex strategy aligns with its long-term vision under the Amrit Kaal initiative, which aims, in its Phase 2, to modernize infrastructure and bring down logistics costs from 14% of GDP to around 7%-8%, making India’s economy more competitive.

India’s Budget Growth: A Focus on Capex
Over the last decade, the Indian government has consistently increased capital expenditure. From constituting 20% of the total budget in 2015, Capex now accounts for 31% in 2025-26. The Capex budget has grown at a 15% CAGR over the past decade and at 19% CAGR over the past five years, far outpacing revenue expenditure growth.
This shift in spending priorities signals the government’s commitment to minimal bureaucracy and maximum infrastructure development, ensuring that investments in roads, railways, and power contribute to long-term economic resilience.

Fiscal Discipline Amidst Heavy Capex
Even as the government ramps up capital investments, it remains committed to fiscal discipline. India’s fiscal deficit, which peaked at 9.2% of GDP in FY21 due to pandemic-related expenditures, has since been brought down to 6.4% in FY23 and is projected to reach 4.4% by FY26. Despite large-scale spending on infrastructure, the government has managed to keep borrowing levels stable at INR 15.68 lakh crore for FY26.

Sector-Wise Capex Growth
Some key sectors have experienced significant Capex growth over the past decade:
• Railways: Grew at 20.5% CAGR, with major allocations for new lines, metro projects, and rolling stock.
• Power: Grew at 21.4% CAGR, with increased focus on renewable energy.
• Housing & Urbanization: Grew at 19.9% CAGR, driven by government schemes such as PMAY (Urban & Rural).
• Roads & Highways: Grew at 44.2% CAGR, with consistent investments in the National Highways Authority of India (NHAI).

Multiplier Effect of Capex
Government capital investments have a strong multiplier effect on GDP growth. According to a World Bank study, every unit of capital spending generates 2.45 units of GDP. Based on this estimate, the Capex executed under the National Infrastructure Pipeline (NIP) of INR 56.3 trillion is expected to contribute approximately INR 138 trillion in GDP growth.
Additionally, projections indicate that if India continues on this trajectory, the country’s GDP could reach $6 trillion by 2030, purely from government Capex. With private and state investments added, this figure could climb to $7 trillion by 2030.

A Balanced Approach
The 2025 Union Budget underscores a balanced approach, fostering both short-term consumption and long-term infrastructure growth. While tax relief measures will provide an immediate boost to demand, the sustained focus on capital investments ensures a solid foundation for India’s economic growth over the next decade.
With an estimated INR 200-250 trillion boost to GDP between FY26-FY30, India is well on track to achieving its ambitious vision of a $7 trillion economy by 2030 and a Viksit Bharat by 2047. By maintaining fiscal discipline while prioritizing infrastructure, the government is laying the groundwork for a resilient and globally competitive economy.