Union Finance Minister Nirmala Sitharaman has assured that the government's ambitious capital expenditure programme and fiscal discipline will remain on track despite the rollout of GST 2.0 reforms.
In an exclusive interview, FM Sitharaman ruled out any cut in public investment or deviation from the fiscal glide path due to potential revenue implications of the new tax structure.
"At this moment, I can say with confidence, capital expenditure of the government will not come down. It will be completed as per budgetary estimates, and so with the fiscal deficit. This is the last point of my gliding path and I will adhere to it," she said.
Rs 11.21 Lakh Crore Capex Target for FY26
The Centre has earmarked Rs 11.21 lakh crore for capital expenditure in FY26, focusing largely on infrastructure development. According to sources, the government may recalibrate its strategy to diversify investments beyond roads and railways, which currently account for nearly half of the outlay, towards urban infrastructure, ports, shipping, and civil aviation.
The reassurance comes amid growing concerns about India's investment outlook, especially with private sector spending losing momentum.
Private Capex Shows Weakness
A recent SBI Research survey of 2,000 companies pegged intended private capex at Rs 4.9 lakh crore for FY26, down sharply from Rs 6.6 lakh crore in FY25, a 26% decline. Data shows private investment grew just 8.4% in FY25 to Rs 5.1 lakh crore, the slowest in four years.
Private sector's share in gross capital formation has stagnated at 33% of GDP in FY24, down from 37% in FY20, while the government and PSUs' share rose to 25%. Economists warn that this puts the onus on the Centre to act as the main engine of growth.
Fiscal Deficit Concerns
The government has set the fiscal deficit target for FY26 at 4.4% of GDP, or Rs 15.69 lakh crore. As per official data, the deficit for the first four months stood at Rs 4.68 lakh crore (29.9% of the full-year target).
Before the GST 2.0 decisions were finalised, analysts flagged concerns of revenue shortfall. CLSA estimated that the new tax slabs could cause a Rs 1.5 lakh crore annual revenue loss, potentially affecting both Centre and states.
However, FM Sitharaman dismissed fears of fiscal slippage. She emphasized that the new GST framework will simplify classification, reduce litigation and spur consumption.
GST 2.0 and Consumption Boost
Effective September 22, 2025, GST 2.0 trims the tax structure to two slabs - 5% and 18% plus a 40% rate for luxury and sin goods. The Finance Minister stressed that this would 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 remain outside GST for now.
Outlook
Experts say the combination of steady government spending and simplified taxation is crucial at a time when private investment is subdued. While states remain cautious about potential revenue losses, the Centre is betting on demand-led growth to sustain momentum without compromising on fiscal discipline.
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