In the budget of FY26, the high expectations of investors on Infrastructure Capex were not met. The total capex has increased by 11% and only 5% compared to the budget estimates (BE) of FY25. However, the allocation for metro rail in FY26 is 35% and 19% higher than the FY25 BE/Re, respectively, the allocation for roads and railways (YOY) was flat on an annual basis. The focus on rolling stock in railway capex has increased. At the same time, allocation for water supply and affordable housing is also weak and no allocation has been made in the budget for ‘Smart City’ mission. Investors were expecting great growth, but they were disappointed due to low allocation in major areas such as roads, railways and urban infrastructure.
Total Capex increased by 11%, but road and railway remain empty handed
FY26 in 26 has an allocation of about Rs 15.5 lakh crore for the infrastructure sector, which is 5% higher than the INR 14.8 lakh crore of FY25 BE. The gross budgetry support (GBS) has increased by just 1% on an annual basis and has increased to Rs 11.2 lakh crore, while internal and additional budget resources (IBR) have registered an increase of 18%.
The allocation in railway and road areas remained flat on an annual basis and is equivalent to both FY25 budget and revised estimate (BE and Re). The allocation for railway rolling stock has increased by 13%, while the allocation for civil construction (dabbling, gauge conversion, new lines, etc.) remained stable on an annual basis.
Road: Stability in allocation for second consecutive year
In the FY26 budget, the capex of Rs 2.7 billion has been kept for the road sector, which was flat on an annual basis compared to FY25 BE/Re.
The budget allocation for the National Highways Authority of India (NHAI) has increased by just 1% on an annual basis. The IBR projection for NHAI in FY26E remains zero, which makes it clear that the government is not in favor of increasing the debt of NHAI and is taking a cautious stand.
The allocation for FY26E in terms of asset monitization has also been flat on an annual basis.
Railways: Budget allocation stable on annually basis
The government has allocated about 2.7 lakh crore for the railway sector, which is flat on an annual basis compared to FY25 BE/Re. Within the total allocation, there is no increase in both budgetary support and IbR. This indicates that the government is cautious about taking more loans in the railways, as also seen in the case of NHAI.
Compared to the budget target of FY25, the purchase of wagon and passenger coaches was less than the target. Railways plans to meet this shortage in FY26. FY26 (BE) plans to buy 38,000 wagons, while the number in FY25 (Re) was 30,000. Similarly, the passenger coach has been targeted at 9,423 in FY26 (BE), while it was 7,910 in FY25 (Re). The target for locomotives is stable on an annual basis and remains 1,600.
Metro Rail: Capex allocation for this sector has increased by 35% compared to FY25 BE and 19% compared to FY25 Re. The government aims to expand the metro and intercity rapid rail network to reduce urban congestion.
Amrut Plan: The allocation for Amrut has increased by 25% compared to the FY25 BE, which reflects the government’s focus on urban water supply and hygiene.
Capex growth sluggish in urban infra and affordable housing sector
Apart from roads and ravale, other infra sub-segments have also received mixed allocation. These include:
Affordable Housing: Pradhan Mantri Awas Yojana (PMAY) – FY26 (BE) has an allocation of about Rs 233 billion for urban, which is 23% lower than the FY25 (BE) of Rs 302 billion. However, this allocation in FY26 increased by 54% in FY26 compared to FY25 (Re), as FY25 was expected to cost relatively low.
PMAY- Rural: PMAY- FY26 (BE) has an allocation of Rs 548 billion for rural, which is 1% more than FY25 (BE) and 69% higher than FY25 (Re).
Urban Infra: This time the budget has not allotted any allocation for the Smart City Mission. On the other hand, the allocation for the AMRUT program is kept at Rs 100 billion, which is 25% more than FY25 (BE) and 67% higher than FY25 (Re).
Asset monitization required for long term growth
Brokerage house Nuwama said in a report that this slow growth of capex allocation is disappointing for companies in roads and water supply areas. On the other hand, focusing on railway rolling stock will benefit companies like Titagarh and Texmaco Rail.
Nuwama Research has suggested that companies like NCC, which have diversion portfolio and low debt, can take better advantage of emerging opportunities. Slow Capex Growth has raised concerns about the potential recession in long-term infrastructure development, making asset monetization and public-private partnership (PPP) models important to fill the funding gap.
The Union Budget of FY26 shows some increase in metro and Amrut schemes, while strong infrastructure did not meet the expectations of expansion. Limited growth in major areas such as roads, railways and affordable housing has alerted investors. Now meditation is on asset montization and efficient allocation of resources to meet the goals of long-term growth.