Jaspreet Singh Arora, Chief Investment Officer at Equentis Wealth Advisory Services, expects the upcoming Union Budget to be reform-oriented within tight fiscal constraints, projecting an 11-13% increase in capital expenditures. He anticipates a "continuity budget" that reinforces existing successful policies while pushing India toward becoming a manufacturing powerhouse.

Budget Expectations and Fiscal Strategy

Arora expects the government to pause further fiscal consolidation, maintaining the deficit near 4.4% of GDP while re-orienting spending toward capex and development outlays. The budget is likely to focus on:

• Manufacturing incentives: Enhanced support for AI and semiconductors
• Sunrise industries: Major push for defence, electronics, AI, nuclear energy, and critical minerals through PLI schemes
• Long-term fiscal health: Targeting debt-to-GDP ratio reduction from 81% currently to about 50% by FY31

Market Challenges and Global Factors

According to Arora, President Trump's tariff policies represent the foremost short-term threat to equity markets, triggering widespread global trade disruptions. This has resulted in significant foreign institutional investor (FII) selling, with over Rs 40,000 crore offloaded from Indian markets in January 2026 alone. The rupee's depreciation to record lows near 91.97/USD has further intensified capital flight and increased importer hedging costs.

To counter tariff impacts, the government is pursuing a "diversify and defend" strategy, including fast-tracking trade deals with the UK, Oman, and the anticipated EU agreement. The Export Promotion Mission with an outlay of Rs 25,060 crore is being introduced to mitigate tariff impacts.

RBI Policy Outlook

Arora believes the RBI will prioritise liquidity support and rate transmission over outright monetary easing in its February policy meeting. Despite approximately 125 basis points of cumulative cuts, 10-year G-sec yields have barely declined, indicating weak transmission. Current market assumptions point to only a terminal 25 basis point cut.

The central bank has stepped up open market operations and conducted variable rate repo auctions to manage tight system liquidity, while using USD/INR swap windows to offset liquidity drains from forex market interventions.

Sector-Specific Outlook

For the IT sector, Arora considers this an opportune time for accumulation, with Nifty IT valuations at a reasonable P/E of around 27x, down from December 2024 peaks of 37x. AI-driven deal ramp-ups are gaining pace, and analysts forecast 6-8% USD revenue growth into FY27, significantly ahead of prior consensus estimates of 3-4%.

Regarding targeted relief measures, markets are not expecting massive giveaways but rather focused support through tax credits and incentives for MSMEs and export-heavy sectors affected by tariff pressures.

A detailed economic analysis emphasizes the strategic importance of maintaining public capital expenditure focus in India's upcoming Budget 2026-27, highlighting infrastructure investment's proven multiplier effects and structural economic benefits.

Infrastructure Investment Delivers Strong Multiplier Effects

The analysis reveals that infrastructure spending generates significantly higher economic returns compared to consumption expenditure. While consumption spending typically delivers one-time benefits, infrastructure investment creates sustained economic impact through job creation, cost reduction, and productivity enhancement.

This multiplier effect stems from infrastructure's dual impact: immediate demand creation across multiple sectors during construction, followed by ongoing productivity improvements from completed assets.

Capital Expenditure Growth Shows Substantial Expansion

Central government capital expenditure has demonstrated remarkable growth trajectory, reflecting the administration's commitment to infrastructure-led development.

The substantial increase in capital allocation demonstrates the government's strategic positioning of infrastructure investment as the primary instrument for achieving ambitious economic targets.

Logistics Efficiency Improvements Exceed Expectations

Recent research has revealed significant improvements in India's logistics performance, contradicting earlier pessimistic assessments. A comprehensive study commissioned by the Department for Promotion of Industry and Internal Trade and conducted by the National Council of Applied Economic Research has provided updated logistics cost data.

These improvements reflect tangible benefits from sustained investment in highways, rail freight corridors, port modernization, and multimodal logistics infrastructure. The enhanced efficiency directly supports manufacturing and export competitiveness through reduced operational costs.

Private Investment Catalyzed by Public Infrastructure

Public infrastructure investment has demonstrated its effectiveness in stimulating private capital formation rather than crowding it out. Improved connectivity and reduced project risks have enhanced returns across multiple sectors:

• Manufacturing facilities benefit from better transport connectivity
• Logistics operations gain from improved rail and highway networks
• Renewable energy projects leverage enhanced power transmission infrastructure
• Data centers capitalize on improved digital backbone
• Urban services expand with better infrastructure foundation

This catalytic effect positions public capital expenditure as a strategic tool for anchoring long-term investment cycles and shaping positive market expectations.

Strategic Recommendations for Budget 2026-27

The analysis identifies three critical areas for optimizing infrastructure investment effectiveness in the upcoming budget:

High-Multiplier Focus Areas:

• Logistics infrastructure development
• Urban infrastructure expansion
• Power transmission networks
• Renewable energy integration
• Digital infrastructure backbone

Private Capital Integration:

• Enhanced public-private partnerships
• Strategic asset monetization programs
• Blended finance mechanisms

Execution Quality Improvements:

• Streamlined approval processes
• Milestone-linked funding mechanisms
• Enhanced monitoring systems
• Faster ground-level asset delivery

The expert analysis concludes that capital expenditure represents more than budgetary allocation—it constitutes a comprehensive economic strategy. As global growth faces uncertainty and domestic pressures mount, maintaining infrastructure investment focus provides stable economic anchoring while supporting long-term growth objectives. The approach signals policy continuity to markets and investors planning substantial capital commitments, reinforcing India's commitment to sustainable, inclusive economic development.