Second, many sectors that require significant infrastructure development – such as water supply, housing, metro systems and commercial shipping – fall under state or private sector jurisdiction. Expenditure on these schemes does not result in creation of assets in the books of the Union Government and is therefore recorded as revenue expenditure. These items need to be added again. Finally, infrastructure expenditure financed through extra-budgetary resources – through PSUs or quasi-sovereign agencies – must also be included to form a holistic picture.
After these adjustments, we find that the Centre’s effective infrastructure expenditure has increased by 18% year-on-year, reversing last year’s modest contraction. Defense remains the mainstay, with a 17% increase in allocations, while roads and railways have each recorded a growth of around 11% (including allocations under the Gram Sadak Yojana). After an introduction to Maritime Vision, the offer for the shipping and port industry starts. Housing and water also receive healthy allocations, although implementation remains a key risk as these segments have failed to meet budgeted targets over the past three years. In the energy and renewable energy sector, expenditure remains PSU-driven through internal and extra-budgetary resources.
In addition to direct capital investments, Production-Linked Incentive (PLI) schemes are an important indirect driver of investments. Since these schemes absorb some of the costs of capacity creation, tracking their allocations and usage is critical. The subsidy disbursements under the PLI have been steadily increasing and are estimated to reach Rs. 200 billion in FY26. Between FY22 and FY26, total disbursements are Rs. 421 billion – about 14% of the committed budget. The total PLI corpus has been expanded from Rs. 2.3–2.6 trillion four years ago to almost Rs. 3 trillion today. For FY27, the government expects strong growth in automobiles, semiconductors, electronic components and white goods. The use of PLI in large-scale electronics and IT hardware may see a decline in the near term as the second round has only recently begun and is likely to gain momentum from FY28 onwards.
Tax incentives are also an important lever to catalyze investments. In this context, the proposed tax exemption for foreign companies using India-based data centers could give the sector a significant boost. Under the proposal, foreign companies providing services through Indian data centers would benefit from a tax exemption until 2047, subject to specific conditions: they cannot directly own or operate the data centers, must route domestic sales through an Indian reseller, and receive a formal notification from the government. Few major jurisdictions offer incentives of comparable duration, potentially making India an attractive destination for hyperscalers like Amazon, Google and Microsoft. This could spur large-scale construction of data centers and significantly increase demand for power, transmission infrastructure, cooling systems, substations, fiber optic networks and commercial real estate. However, important questions remain, particularly around whether hyperscalers would accept not owning or operating their facilities, and whether competing global hubs such as the US, Germany or Britain could respond with countermeasures.
In short: the budget was clearly more focused on the quality of expenditure, accompanied by selective tax changes. The measures were aimed at increasing the country’s long-term productive potential to counter external vulnerabilities and boost growth.
Infrastructure-focused spending is expected to rise 18% in FY27
Source: Budget documents, SBIFM Research
The payment of subsidies under production-related incentive measures will start
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