India Capex Spend Trajectory 2026: Government, Private, and FDI in One Frame

The Investment Ratio Is Back, But the Composition Has Shifted #

India's gross fixed capital formation as a share of GDP bottomed at 27.3 percent in FY21 during the pandemic shock and has climbed steadily since, reaching 33.7 percent in FY25 per provisional National Accounts estimates. The recovery is significant because it reverses a decade-long decline from the 2011 peak of 35.8 percent. What makes the current cycle different is the explicit policy scaffolding sitting underneath it: the Production Linked Incentive (PLI) schemes covering 14 sectors with an outlay of roughly 1.97 lakh crore rupees, the PM Gati Shakti National Master Plan integrating logistics infrastructure across 16 ministries, and the Make in India 2.0 framework targeting 25 percent manufacturing share of GDP by 2027.

The composition, however, is not symmetric. Public capex has done the heavy lifting since FY22, with the Union Budget capital expenditure line item rising from 4.39 lakh crore rupees in FY21 to a budgeted 11.21 lakh crore rupees in FY26. Private corporate capex lagged for most of this period because of deleveraging, twin balance sheet repair, and global demand uncertainty. Only in FY24 and FY25 did the private cycle begin to turn meaningfully, and the question for 2026 is whether it can sustain momentum as fiscal consolidation forces the public engine to ease off the accelerator. This brief decomposes the three sources of capex, public, private, and foreign, and frames them in a single risk lens for boards, sovereign allocators, and corporate treasurers planning India exposure.

Public Capex: Union, States, and CPSEs #

The public capex envelope in India has three distinct layers, and conflating them produces misleading conclusions. The Union Budget capital expenditure has been the headline driver, growing at a compound annual rate of approximately 21 percent between FY20 and FY26 budget estimates. The bulk of this growth has gone to roads (Ministry of Road Transport and Highways), railways (capital outlay reaching 2.65 lakh crore rupees in FY26 BE), and defense capital acquisition. The interest-free 50-year capex loan to states, scaled to 1.5 lakh crore rupees in FY26, is a second-order lever designed to crowd in state spending.

State capex tells a more uneven story. The 18 large states tracked by the RBI in its State Finances report show consolidated capex outlay of around 7.2 lakh crore rupees in FY25 revised estimates, up from 5.1 lakh crore in FY22 but still below the budgeted aggregate of 8.4 lakh crore for FY26. Election years tend to skew state capex toward revenue subsidies, and FY24 saw a clear slippage. Central public sector enterprises (CPSEs) form the third layer, with the Department of Public Enterprises target for FY26 set near 8.0 lakh crore rupees, dominated by NTPC, ONGC, Indian Oil, NHAI, and Power Grid. The CMIE Capex database, which tracks announcements and completions across listed and unlisted entities, suggests CPSE delivery rates have averaged 78 to 84 percent of targets over the past three years, a useful planning anchor.

Private Capex: Credit, Capacity, and Announcements #

Private capex requires three conditions to fire simultaneously: credit availability, sufficient capacity utilization to justify expansion, and visible demand. All three have moved into supportive territory by early 2026. Aggregate scheduled commercial bank (ASCB) non-food credit growth to industry stood at 9.8 percent year-on-year in February 2026, with credit to large industry growing at 7.4 percent and to medium industry at 18.6 percent. The medium industry acceleration is significant because it captures the supplier ecosystem feeding PLI-anchored anchor investments. Credit to infrastructure subsectors, particularly roads and renewables, has grown above 15 percent.

The RBI's Order Books, Inventories and Capacity Utilization Survey (OBICUS) for the December 2025 quarter showed seasonally adjusted capacity utilization at 75.8 percent, comfortably above the 74 percent threshold historically associated with greenfield investment decisions. Sectors at or above 80 percent include cement, electrical equipment, and basic metals. The CMIE corporate capex announcements database recorded new project announcements of 12.8 lakh crore rupees in calendar 2025, the second-highest annual reading on record after 2022, with completions catching up at roughly 8.4 lakh crore. The gap between announcement and completion remains the single largest forecasting risk; CMIE's stalled projects index is still elevated at around 5.6 percent of projects under implementation, concentrated in power generation and irrigation.

FDI: Sources, Sectors, and Regional Benchmarks #

FDI equity inflows into India totaled approximately 47.2 billion dollars in FY25 per DPIIT data, marginally above FY24 but well below the FY22 peak of 58.8 billion. The dollar headline understates the strategic shift underneath. Mauritius and Singapore continue to dominate as routing jurisdictions, accounting for roughly 47 percent of cumulative inflows, but direct flows from the United States, Japan, the Netherlands, and the United Arab Emirates have risen meaningfully. The sectoral mix has rotated decisively away from services and e-commerce toward computer hardware, semiconductors, electrical equipment, and renewable energy. FDI into the computer hardware and software category alone was 14.1 billion dollars in FY25, of which a growing share is attributable to semiconductor packaging and assembly investments.

The benchmark question is how India compares to other manufacturing FDI destinations. China continues to attract larger absolute flows, but its FDI as a share of GDP has fallen below 1.0 percent for the first time in two decades amid geopolitical decoupling. Vietnam, a frequent comparison point, attracted about 25 billion dollars of registered FDI in 2025 against a GDP roughly one-tenth of India's, giving it a ratio nearly five times India's. The implication for capex planners is that India's FDI absorption is shallow relative to its market size, leaving substantial room for upside if the regulatory and land acquisition frictions ease.

Sector Spotlight: Semiconductors, Renewables, EV Components #

Three sectors concentrate the most consequential capex bets being placed on India through 2028. Semiconductors moved from policy aspiration to physical construction during 2024 and 2025. The Tata Electronics joint venture with Powerchip Semiconductor Manufacturing Corporation (PSMC) for a 28-nanometer fab in Dholera, Gujarat, with announced investment of 91,000 crore rupees, broke ground in 2024 and is targeting first wafer-out in late 2026. Micron's Sanand assembly, test, marking, and packaging (ATMP) facility, with a 22,500 crore rupee envelope, began phased commissioning in 2025. The Vedanta-Foxconn joint venture collapsed in 2023, and Vedanta has since pursued an independent path with reduced certainty. The semiconductor mission's success is binary: either two or three fabs operate at scale by 2028 or the policy resets.

Renewables are the second pillar. The PLI scheme for high-efficiency solar PV modules, with an outlay of 24,000 crore rupees, has anchored roughly 65 gigawatts of integrated module manufacturing capacity announcements from Reliance, Adani, Tata Power, Waaree, and Vikram Solar. The third pillar, EV components, is broader and more diffuse: PLI for advanced chemistry cells (50 GWh awarded), the FAME III scheme, and the auto and auto components PLI together support battery cell, traction motor, and power electronics localization. Capex announcements in EV-linked categories crossed 1.4 lakh crore rupees during 2025 per CMIE tracking. The risk for all three sectors is the same: subsidy-driven capex tends to overshoot in the announcement phase and undershoot in commissioning, and the gap is where macro-financial risk concentrates.

Three Scenarios for 2026 to 2028 #

Scenario one, capex broadening, assumes the private cycle sustains with credit growth above 10 percent, OBICUS capacity utilization holding above 76 percent, and FDI rebounding to 60 billion dollars by FY28 as semiconductor and renewable commitments translate into greenfield drawdowns. Public capex eases as a share of GDP from 3.4 percent toward 3.0 percent, but the absolute envelope continues growing at 8 to 10 percent annually. Investment-to-GDP reaches 35.8 percent by FY28, equity earnings revisions stay positive, and the rupee firms below 82 to the dollar. We assign this scenario a 40 percent probability.

Scenario two, K-shaped recovery, assumes private capex remains concentrated in PLI-anchored sectors and a handful of conglomerates while broader manufacturing and MSME investment stagnates. Public capex carries the headline number but multiplier effects weaken. FDI plateaus at 45 to 50 billion dollars annually with growing concentration in semiconductors and energy. Investment-to-GDP holds at 33 to 34 percent, headline growth stays in the 6.4 to 6.8 percent corridor, but employment elasticity disappoints. Probability: 45 percent.

Scenario three, fiscal slippage, assumes pressure to consolidate the central deficit toward 4.4 percent of GDP forces sharper-than-expected cuts in Union capex, while state capex deteriorates further amid revenue subsidy commitments. Private capex weakens in response to lost public crowd-in, FDI falls below 40 billion dollars, and stalled projects rise above 7 percent of under-implementation pipeline. Investment-to-GDP slips to 31 to 32 percent and growth deceleates to 5.8 percent. Probability: 15 percent. The risk premium embedded in Indian sovereign and corporate spreads currently underprices this scenario.

Working with Sisyphus and Argus on India Capex Risk #

Our Sisyphus engagement track structures India capex exposure for sovereign allocators, multinationals, and infrastructure funds: scenario-weighted capex pipelines by sector and state, FDI absorption diagnostics benchmarked against China and Vietnam, and stress tests linking public capex consolidation to private credit and corporate earnings. Argus, our continuous monitoring product, tracks Union Budget execution rates, state-level capex releases, OBICUS capacity utilization shifts, ASCB credit-to-industry inflections, DPIIT FDI flows by sector and source country, and CMIE announcement-to-completion conversion ratios with quarterly alerting on regime change.

If you are a board, treasury, or allocation committee weighing India capacity addition, supplier localization, or sovereign and corporate India exposure for 2026 to 2028, /engage with our Macro-financial risk practice for a structured diagnostic. We pair the public, private, and FDI lenses in a single decision frame so that capex commitments are sized to the scenario you can defend, not the scenario you hope for.

Sources #

• Reserve Bank of India Statistical Database
• DPIIT FDI statistics
• Union Budget documents (Ministry of Finance)
• CMIE Capex database (cited)
• Ministry of Statistics National Accounts