The Union Budget 2026-27 has maintained the commitment to creating infrastructure capacity. It has allocated a record capital expenditure of Rs 12.2 trillion (3.1 per cent of GDP), up from the Rs 11.2 trillion budgeted in 2025-26 (budgetary estimates [BE]). In terms of GDP, this is about the same as that in the last budget for 2025-26. Execution, however, will be crucial. Revised estimates (RE) show actual sector spending fell short of initial BE, especially in roads and urban rail. In terms of sectors, water has received enhanced focus, and geographically there is a focus on Tier-II and Tier-III cities (populations exceeding 0.5 million). In concrete terms, the budget aims to enhance domestic manufacturing and support micro, small, and medium enterprises (MSMEs). The proposal to launch an infrastructure risk guarantee fund could give comfort and confidence to private players working in this space by mitigating risks, however, success depends on its effective implementation.
India Infrastructure takes a look at budget impact across sectors:
Roads
The allocation for the Ministry of Road Transport and Highways (MoRTH) is Rs 3.10 trillion, an annual increase of around 8 per cent from Rs 2.87 trillion (BE and RE). The allocation for the National Highways Authority of India (NHAI) stands at Rs 1.87 trillion, an increase of around 10 per cent year on year from Rs 1.70 trillion (RE). The NHAI is looking to strengthen the balance sheet by reducing its debt to below Rs 2 trillion by March 2026. Additionally, the budget assumes internal and extra budgetary resources (IEBR) for the NHAI in 2026-27 to remain zero for the fifth year in a row.
There are concerns, however, on the ground regarding the road sector. In FY25, there was a slowdown due to delays in project approvals, as election codes of conduct kicked in. There were also transition issues as the ministry adopted a new build, operate, transfer (BOT) toll model. We did not see a full rebound in FY26 with some high-value tenders being cancelled. There are ambitious targets for monetising road assets and this means reliance on InvITs. There is a big pipeline of projects but work in progress and tendering is behind schedule, calling for the concerned agencies to improve the efficiency of execution.
Railways
The budget has allocated Rs 2,928 billion for Indian Railways (IR) with Rs 2,778 billion to be provided by the central government as gross budgetary support (GBS). This includes construction of new lines, doubling, gauge conversion, electrification, track renewals, bridge & tunnel works, rolling stock, and signalling and telecommunication (S&T). In addition to these normal tasks, three projects are in focus. The Dedicated Freight Corridor Project (Western Corridor) has been assigned Rs 10 billion for the Rewari-Vadodara section, Haryana Rail Infrastructure Development Corporation Limited (HRIDC) has received Rs 4.88 billion for Part A of the Haryana (Palwal-Sonipat) Orbital Rail Corridor Project, and National High Speed Rail Corporation Limited (NHSRCL) has been allocated Rs 61.03 billion for the Mumbai-Ahmedabad High-Speed Rail Corridor Project.
Aviation
The Ministry of Civil Aviation (MoCA) has been allocated Rs 21.03 billion. This is about 12.4 per cent less than the Rs 24 billion originally allocated in the previous budget, but marginally higher than the RE for 2025-26. An amount of Rs 5.5 billion has been earmarked for the Regional Connectivity Scheme (RCS). The budget also proposes to exempt basic customs duty on components and parts required for manufacturing aircraft and it has proposed incentives, such as a viability gap funding (VGF) scheme, to indigenise manufacturing of seaplanes.
Ports and Shipping
For the Ministry of Ports, Shipping and Waterways (MoPSW), Rs 51.65 billion (budget estimate) has been set aside, this is 48.8 per cent higher than the last year’s BE of Rs 34.71 billion and 78.16 per cent higher than the last year’s RE of Rs 28.99 billion. Apart from Rs 3.4 billion for ship-building, and research and development, an allocation of Rs 15.47 billion has been made for the Inland Water Transport Authority of India (IWAI) and Rs 6.17 billion has been earmarked for the Sagarmala Programme.
As many as 20 new national waterways (NW) are expected to be operationalised over the next five years. A ship repair ecosystem for inland waterways will also be set up at Varanasi and Patna. A coastal cargo promotion scheme will be launched to incentivise modal shifts from rail and road. The Rs 100 billion allocation (over five years) to promote domestic manufacturing of containers is a new initiative that could gain significant traction.
Urban rail
An allocation of Rs 287.4 billion BE has been made for metro rail and mass rapid transit system (MRTS) projects. This is 8.7 per cent lower than the BE of Rs 312.39 billion and 4.7 per cent higher than the RE of Rs 274.5 billion for FY 2025-26. An additional sum of Rs 560.5 million has been sanctioned as grant for metro projects and Rs 22 billion has been set aside for the National Capital Region Transport Corporation for implementation of Regional Rapid Transit System (RRTS) projects.
A Scheme for Enhancement of Construction and Infrastructure Equipment (CIE) has been planned for enhancing domestic production. This will cover a wide range of CIE, from lifts and fire-fighting equipment, to tunnel-boring machines for metro projects and high-altitude road construction equipment.
Water
The Ministry of Housing and Urban Affairs has received an allocation of Rs 855.22 billion. This is around 49.50 per cent higher than the RE of Rs 572.04 billion for 2025-26. The outlay for the Swachh Bharat Mission (SBM)-Urban is Rs 25 billion while Rs 80 billion has been earmarked for the Atal Mission for Rejuvenation and Urban Transformation (AMRUT).
The Ministry of Jal Shakti (MoJS) has received Rs 948.08 billion, which is 128.80 per cent higher than the RE of Rs 414.37 billion for 2025-26. The Department of Water Resources, River Development and Ganga Rejuvenation has been allocated Rs 199.13 billion while the budget outlay for the Department of Drinking Water and Sanitation (DDWS) is Rs 748.95 billion. Under the DDWS, an allocation of Rs 676.70 billion has been made for the Jal Jeevan Mission (JJM) while Rs 71.92 billion has been earmarked under SBM-Grameen. Under the Department of Water Resources, River Development and Ganga Rejuvenation, an outlay of Rs 31 billion has been made for the Namami Gange Mission II.
Oil and Gas
The Ministry of Petroleum and Natural Gas has received Rs 304.43 billion, this is 57.5 per cent higher than the BE of Rs 193.27 billion and 2.2 per cent higher than the RE of Rs 298 billion in 2025-26. Further, Rs 2 billion has been earmarked for strategic oil reserves and Rs 110.85 billion for the liquified petroleum gas (LPG) subsidy. Another Rs 7 billion has been allocated for Indradhanush Gas Grid Limited (IGGL), part of the North East Natural Gas Pipeline Grid; Rs 1 billion for providing financial support for biomass collection; and Rs 0.2 billion for the development of pipeline infrastructure for the injection of compressed bio gas (CBG) into the city gas distribution (CGD) network.
Power
The Ministry of Power has been allocated Rs 299.97 billion (Rs 215.88 billion in 2025-26). A set of measures were announced for the sector, including higher customs duty relief, carbon capture support, transmission expansion for green corridors, public sector investments and restructuring of non-banking financial institutions. The finance minister has proposed a Rs 200 billion outlay spread over the next five years to support carbon capture, utilisation and storage technologies (CCUS), while the basic customs duty (BCD) has been exempted on the import of sodium antimonate used in the manufacture of solar glass. The BCD exemption has been extended to capital goods for processing critical minerals and manufacturing lithium-ion cells. An existing BCD exemption on imports required for nuclear power projects has been extended till 2035 and expanded to cover all
nuclear power plants.
The budget proposes to restructure the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to strengthen their roles as long-term infrastructure financiers. The proposed Infrastructure Risk Guarantee Fund aims to attract private capital across the power value chain, by reducing financial risk during the construction and early development phases of projects.
Renewable Energy
The Ministry of New and Renewable Energy has been allocated Rs 329.14 billion, up from Rs 265.49 billion in 2025-26. The allocation for the solar sector is Rs 305.39 billion in 2026-27, up from Rs 242.24 billion in 2025-26. The allocation for the Pradhan Mantri Krishi Urja Suraksha evam Utthaan Mahabhiyan programme is Rs 50 billion, and that for the PM Surya Ghar: Muft Bijli Yojana is Rs 220 billion. The National Green Hydrogen Mission has received an outlay of Rs 6 billion. The total budgetary allocation for wind and other renewable energy sources (grid and off-grid hydro power) is Rs 5.51 billion, and that for the bioenergy programme is Rs 2.75 billion. Meanwhile, Rs 5.99 billion has been earmarked for the green energy corridor.
BCDs have been reduced to nil on sodium antimonite and certain capital goods required for lithium-ion cell production. To promote cleaner energy, the government has proposed to exclude the entire value of biogas when calculating excise duty on biogas-blended compressed natural gas (CNG). Additionally, the BCD on monazite (a critical mineral) has been removed.
The government is proposing targeted support for mineral-rich states of Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to establish dedicated rare earth corridors. Also, in line with the CCUS Roadmap launched in December 2025, the government plans to scale up these technologies across five major sectors – power, steel, cement, refineries, and chemicals. To support this initiative, Rs 200 billion may be allocated over the next five years.
Telecom
The proposed outlay for the Ministry of Communications is Rs 739.90 billion. This includes a significant capital infusion of Rs 284.73 billion for BSNL to fund 4G/5G roll-out and BharatNet, and is a substantial increase from Rs 68.85 billion in FY 2025-26. The Ministry of Electronics and IT has received Rs 216.32 billion. The budget has proposed a tax holiday until 2047 for foreign companies providing cloud services to global clients, using data centres in India, provided they serve Indian customers through an Indian reseller entity.
The budget has also launched the India Semiconductor Mission 2.0, with an allocation of Rs 10 billion, for building domestic capabilities across semiconductor equipment, materials, design ecosystem development and talent creation. The allocation for the Electronics Components Manufacturing Scheme is proposed to rise to Rs 400 billion from around Rs 220 billion, due to strong industry response that exceeded projections. For IT and IT-enabled services, the budget has proposed new safe harbour provisions with higher thresholds and more competitive margins. It groups software development, IT-enabled services, KPO and contract R&D under a single category of information technology services, with a uniform safe harbour margin of 15.5 per cent. The eligibility threshold for safe harbour is proposed to be increased from Rs 3 billion to Rs 20 billion.
In another move to encourage manufacturing, the government has allowed foreign companies to supply machinery to contract manufacturers in designated customs-bonded areas for five years without incurring tax. Designed for export-oriented production, devices sold domestically from these facilities will still attract import duties.
Devangshu Datta
