Budget: 10% increase in capex allocation likely for road, railways ministries in FY26

New Delhi: The Centre proposes to keep its focus on rapid infrastructure growth in the next financial year, with plans to push capex allocation for the ministries of road transport and highways, and railways in the upcoming budget by upto 10%, two persons aware of the development said.

The proposed modest increase comes in the backdrop of the government targeting a big increase in private investments into the highway sector in projects being awarded under the build-operate-transfer (BoT) toll model.

Also, the railways will continue implementing existing projects with a focus on capacity augmentation and safety measures that will not require any additional capital. Meanwhile the spending on manufacturing new generation trains such as Vande Bharat would be made in a staggered manner that reduces the pressure on capex in a particular year.

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“We are expecting 20-25% of highways project awards next year to be on BoT (toll) model. This would relieve pressure on the government to spent on its own for such infrastructure development. The money will continue to be spent by the government but with more private investors, central capex could go into more critical infrastructure projects and ones that have strategic interest attached to it. Also, government capex be used in maintaining existing highway network and make them safer for movements," said the first person quoted above.

Private investment

BoT (toll) projects allow private sector bidders to take construction risk and invest in developing road projects, thereby relieving pressure on the government to make additional capital investments to keep up the building momentum.

Along with increasing the budgetary allocation, the Centre will need to ensure that the bidding process for highways is expedited as it was slow in the last few quarters.

Additionally, railways needs to take urgent steps to structure PPP projects for fostering private investments – as there is really no reason why the railways cannot replicate the PPP success which NHAI has achieved in the highway sector, Kuljit Singh, Partner and Infra Leader, EY India said.

The Centre provided capex of about ₹2.64 trillion (revised estimates) to the ministry of road transport and highways in FY24. In the budget FY25, MoRTH’s capex was increased moderately from ₹2.64 trillion to ₹2.72 trillion. This may increase further to ₹2.90 trillion in FY26.

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Similarly for railways, which has been getting almost its entire capex requirement from the budget for the past few years, may see a marginal increase in capital allocation for FY26 to around ₹2.75 trillion in the best case scenario against ₹2.52 trillion gross budgetary support (GBS) provided in FY25.

Queries sent to ministry of road transport and highways and ministry of railways remained unanswered at press time.

“More than the quantum of budget allocation to infrastructure sector, which is already quite high, the focus should be on better planning and coordination to complete on-going projects & improve execution certainty for ongoing investment programs, more private sector participation and asset monetisation, as well as effective integration of digital technologies into physical infrastructures" Debasish Mishra, Chief Growth Officer at Deloitte South Asia.

Stepping up highway laying

Higher allocation is expected to be used by MoRTH both to step up construction of highways as well as retire high debt levels of NHAI. In fact, the National Highways Authority of India (NHAI) pre-paid loans of worth ₹56,000 crore during FY25, helping the state-owned agency to save interest costs of around ₹1,200 crore and reduce its debt burden to about ₹2.76 trillion from ₹3.3 trillion earlier. Of this, about ₹40,000 crore has been paid by NHAI from the budgetary allocation and remaining from InvIT monetization proceeds. It is expected that NHAI would prepay its debt by a similar amount or higher in FY26.

In FY26, MoRTH may set a target of building 12,000-13,000 km of national highways and award about the same, so that the pace of construction is maintained in subsequent years. But actual construction may scale down a bit as MoRTH may focus on maintaining its existing network of highways and construct only access-controlled highways and expressways.

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Similarly for Railways, the focus would be on maintaining progress on works it has already taken up. Against a budgetary capex allocation of ₹2.52 trillion, a substantial ₹81,713 crore has been used in FY25 upto 5 January on capacity augmentation. Capacity augmentation covers new lines, gauge conversion, electrification, doubling, traffic facilities, investments in PSUs and metropolitan transport. The same focus is expected to be maintained in FY26. Also, rolling stock and safety related expenditure may also see a marginal increase in FY26.

A look at the expenditure trend of MoRTH shows that the balance of government spending has clearly shifted towards capital spending over past few years. In 2021-22, capital expenditure stood at ₹1.13 trillion while revenue expenditure was just over ₹10,000 crore.

The ratio between revenue and capital expenditure stood at 50:50 in 2014-15. But the ratio changed from that year onwards.

In 2015-16, this ratio changed, with the ministry spending more funds on capital expenditure. Since then, the ministry has increased its capital expenditure significantly, while revenue expenditure has gradually declined and is now flat at around ₹11,000 crore. In 2023-24, over 96% of the ministry’s spending went on capital expenditure; prior to this year the capital expenditure was 95% and in FY22 it stood at a still lower 90%.

For FY25, this number has changed further with capital expenditure in overall allocation for MoRTH rising to 98%.

Quality improved

The quality of expenditure has also seen an improvement with most funds going to NHAI.

In the last 9 years, the length of NHs has gone up by about 60% from 91,287 km in April 2014 to over 146,000 km now. With higher allocation, NHAI proposes to further step up highway construction taking it up from 37 km per day in 2020-21, the highest ever so far, to close to over 40 km in the next fiscal.

Highway construction in the pre-pandemic FY20 spanned 10,237 km at a daily rate of 28.04 km. The pace increased during the first pandemic year (FY21), when lockdowns helped accelerate construction, resulting in a record 13,327 km of highways built at 36.51 km per day.

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In FY22, the rate slowed again to 10,457 km at 28.64 km per day. For FY22, the road ministry initially aimed to construct 14,600 km of highways—or 40 km per day. However, it later revised the goal to 12,000 km. FY23 ended with 28.3 km/day construction with overall 10,331 km of highways being built.

The government has allocated Rs. 1.11 trillion under the National Infrastructure Pipeline for FY 2019-25. The roads sector is likely to account for 18% capital expenditure over FY 2019-25. This is closely followed by the railways.