The Government of India's infrastructure investment momentum is set to continue with ICRA projecting capital expenditure targets of ₹13.1 trillion for FY27. This represents a substantial 14% increase from the anticipated ₹11.5 trillion capex spending expected in FY26, underlining the government's commitment to infrastructure development across multiple sectors.

Strong Capital Expenditure Performance

The government's capital outlay performance has shown remarkable consistency and growth. Key financial metrics demonstrate this upward trajectory:

During FY19-FY26, the capital outlay witnessed a robust CAGR of around 20.3%, primarily driven by significant allocations in road, railways, and defence sectors. The actual capex undertaken during April-November 2025 increased by 28.2% to ₹6.6 trillion, representing 58.7% of FY26 Budget Estimate, compared to ₹5.1 trillion during the same period in 2024.

Sector-Wise Capital Allocation Trends

Roads Infrastructure

The road sector continues to dominate government capex allocation, maintaining its position as a priority infrastructure segment:

The Ministry of Road Transport and Highways allocation increased more than eight times from FY14 to FY26 BE. Roads and highways have consistently accounted for around 25% of budgetary allocation over the past five years. Till November 2025, the Ministry spent ₹1.8 trillion, representing 66% of capital allocation for FY26 BE, with expectations to spend around ₹1 trillion during the remaining period.

Railways Development

Railways capital outlay reached a historic high of ₹2.65 trillion in FY26 BE, including extra budgetary resources via PPPs. The focus areas for railway infrastructure include:

• Capacity Augmentation: New routes, gauge conversion, track doubling, and dedicated freight corridors
• Infrastructure Modernisation: Rolling stock upgrades and station redevelopment
• Safety Enhancements: Accelerated deployment of Kavach 4.0 automatic train protection system
• Economic Corridor Development: Ports and mineral logistics connectivity

Power Sector Investments

The power sector allocation focuses on grid resilience and renewable energy integration. Key investment areas include:

• Energy Storage Systems: Battery energy storage systems and pumped hydro projects with viability gap funding
• Transmission Infrastructure: Interstate systems and green energy corridors through HVDC lines
• Distribution Reforms: Enhanced funding under Revamped Distribution Sector Scheme and smart metering initiatives
• Manufacturing Incentives: Grid-scale batteries and solar module manufacturing ecosystem support

Future Outlook and Constraints

ICRA expects the government to enhance capex allocation by around ₹250 billion in FY26, taking it to ₹11.5 trillion versus the BE of ₹11.2 trillion. However, post-FY27, the scope for further capex expansion may narrow due to fiscal rigidities expected from FY28, primarily on account of the 8th Pay Commission.

The rating agency anticipates a sizeable increase in the outlay under the scheme for special assistance as loans to states for capital expenditure, from the budgeted amount of ₹1.5 trillion in FY26, thereby supplementing overall states' expenditure. This comprehensive approach combining adequate budgetary allocation, planned asset monetisation, and long-term financing is expected to provide the requisite stimulus for future infrastructure investments.

The Indian government is preparing to commit approximately ₹12,511 crore towards establishing a special purpose vehicle (SPV) for developing a regional transport aircraft, according to government sources. The proposal emphasizes certification, testing, and infrastructure development rather than focusing solely on design aspects, reflecting the complex requirements of civil aircraft manufacturing.

Project Structure and SPV Framework

The SPV is designed as a dedicated entity that will integrate government support, technical partners, and industry participants to advance the regional transport aircraft project. While the government has indicated it is "in the process" of setting up the SPV, formal launch is still pending. The vehicle will serve as the primary platform for coordinating funding, partnerships, and execution to avoid fragmenting responsibility across multiple agencies.

Budget Allocation and Cost Structure

The financial breakdown reveals certification as the single largest expense, highlighting the technical complexity of aircraft development. The cost structure demonstrates the government's commitment to meeting international aviation standards and building domestic manufacturing capabilities.

International Partnership and Technical Support

The proposal allocates ₹750 crore for engaging an international knowledge partner to provide expertise in design, certification, and flight testing consultancy. This partnership will focus on FAR-25 design support and flight testing requirements, which are essential for commercial aircraft certification under US Federal Aviation Regulations. The collaboration aims to combine domestic development capabilities with specialized external technical support for safety approvals and testing procedures.

Certification Requirements and Testing Framework

Certification costs of ₹2,507 crore represent the project's largest single expense, involving comprehensive safety validation processes. The certification process requires thousands of testing hours, detailed documentation, simulations, and real-world trials to prove aircraft safety under various operational conditions. Ground testing encompasses structural tests, fatigue assessments, and system integration checks, while flight testing involves prototype performance evaluation for safety and reliability validation.

Risk Management and Contingency Planning

The proposal includes a contingency allocation of approximately ₹480 crore, representing around 5.00% of the total project cost. Administrative and establishment expenditure is estimated at ₹680 crore, calculated at approximately 6.00% of costs excluding contingency and specific consultancy components. The plan also designates ₹1,000 crore for systems indigenisation, emphasizing the development of domestic capabilities in aircraft component manufacturing.

Source: https://www.moneycontrol.com/news/business/economy/govt-likely-to-allocate-rs-12-511-crore-to-spv-for-home-grown-transport-aircraft-13782952.html