The government has not cut capital expenditure but has, in fact, increased effective capex by approximately 18%, from ₹13.18 lakh crore in the current fiscal to ₹15.48 lakh crore in FY26, which accounts for 4.3% of GDP, Finance Minister Nirmala Sitharaman stated in Parliament on Tuesday.

Responding to concerns raised during the Budget 2025 debate in Lok Sabha, Sitharaman reassured members that capital outlay has not been reduced. She emphasized that the effective capital expenditure for FY26 remains at 4.3% of GDP, just 10 basis points lower than the projected fiscal deficit of 4.4%.

“The government plans to allocate nearly 99% of borrowed resources toward effective capital expenditure in the upcoming year,” she added.

Highlighting the Narendra Modi-led government’s commitment to fiscal prudence over the past decade, Sitharaman compared the current economic resilience to the vulnerabilities faced during the UPA era. She noted that while the 2008-09 financial crisis left India among the “fragile five” economies, the country has emerged fiscally stronger despite the challenges of the COVID-19 pandemic in 2020-21.

She also underscored the government’s efforts to improve fiscal transparency by incorporating off-budget borrowings of key agencies like the Food Corporation of India (FCI) into official government accounts.

Addressing concerns over state finances, the finance minister assured that central transfers to states are set to exceed ₹25.01 lakh crore across various schemes in FY26—₹2 lakh crore higher than the revised estimates for the current fiscal.

“Year after year, resource transfers are increasing,” she noted, highlighting that state transfers, which stood at ₹13.44 lakh crore in 2020-21, have nearly doubled to ₹25 lakh crore in just five years. She also expressed optimism about the Indian economy’s rapid recovery, citing a rebound from 5.4% growth recorded in the second quarter of the current fiscal.