Finance Minister Nirmala Sitharaman has ruled out any cut in capital expenditure or deviation from the government’s fiscal roadmap due to the GST 2.0 reforms. Speaking exclusively to CNBC-TV18, she made it clear that the government will stick to its capex plans and the new tax regime will not come at the cost of fiscal discipline.
“At this moment, I can say with confidence, capital expenditure of the government will not come down. It will be completed, as stated in the budgetary planning time, the budget estimate time, and so with the fiscal deficit. And this is the last point of my gliding path I will adhere to it,” she said.
Her reassurance comes amid growing concerns about India’s investment outlook.
The government has set a capital expenditure target of ₹11.21 lakh crore for FY26.
Sources told CNBC-TV18 that it is considering recalibrating this strategy to diversify investments and respond to subdued private sector capex. While roads and railways currently account for nearly half the allocation, the focus is likely to expand to include urban infrastructure, ports, shipping, and civil aviation.
A recent SBI Research survey of over 2,000 companies across sectors pegged intended FY26 capex at ₹4.9 lakh crore, down sharply from ₹6.6 lakh crore in FY25 — a 26% decline. In FY25, private capex grew just 8.4% to ₹5.1 lakh crore, the slowest pace in four years, Economists warn this slowdown could leave the government as the main engine of investment.
Official data shows the private sector’s share of capital formation plateaued at around 33% of GDP in FY24, down from 37% in FY20. In contrast, the combined share of the government and public sector undertakings rose to 25% during the same period.
Market concerns around potential fiscal slippage have grown, particularly after early estimates suggested that the GST rate changes could lead to a significant revenue shortfall. Before the final GST decisions were announced, India Economist at CLSA, told CNBC-TV18 the total revenue loss could exceed ₹1.5 lakh crore annually, split equally between the Centre and states.
“Such a large loss would directly affect fiscal planning,” he said, adding, “We don’t think that fiscal deficit number would be something that would be compromised… it is very likely to be adjusted through lower spending, rather than adjusting fiscal deficit.”
The Centre has pegged the fiscal deficit for 2025–26 at 4.4% of GDP, or ₹15.69 lakh crore. As of the first four months of FY26, the fiscal deficit stood at ₹4.68 lakh crore — 29.9% of the full-year target, official data shows.
Sitharaman also highlighted that the new regime will resolve classification problems and encourage spending. “GST cuts have an immediate psychological effect, and 100% the needle will move on consumption,” she said. She clarified that petroleum products and alcohol will not be brought under GST in the near future.
