India to continue capex focus to drive economic growth amid global caution, says Deloitte’s Rumki Majumdar

New Delhi: The government is likely to maintain a strong focus on capital expenditure, aiming to boost infrastructure and cut logistics costs—key drivers in its ambition to become the world’s third-largest economy—amid a cautious global environment, Rumki Majumdar, economist and director at Deloitte India said.

"I believe capital expenditure will remain a key focus for the Indian government, as there is still significant ground to cover in reducing logistics costs and advancing infrastructure development," she told Mint.

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"This emphasis on capex is expected to continue, as we have seen in the past with many advanced economies." 

The Union government has set a capital expenditure (capex) target of ₹11.21 trillion for FY26, marking a modest 0.9% increase over the previous year's budget estimate of ₹11.11 trillion.

However, the actual spending for FY25 is projected to fall short at ₹10.18 trillion, attributed to delays caused by the 2024 general elections.

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Majumdar said the government has made a significant bet with the latest tax exemptions, aiming to put more income in the hands of young, consumption-driven earners.

By targeting a demographic with high-income elasticity, the government expects that increased disposable income will quickly translate into higher spending, Majumdar said.

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"While direct tax collections may decline initially, the government is banking on a rise in indirect tax revenues as consumption strengthens, ultimately supporting overall revenue growth," she added.

​In the Union Budget 2025–26, the government introduced tax reforms aimed at stimulating consumption and supporting economic growth.

The new tax structure exempts individuals earning up to ₹12.80 lakh annually from paying income tax, a substantial increase from the previous threshold of ₹7 lakh.

Additionally, the highest tax rate of 30% now applies only to incomes exceeding ₹24 lakh.

Majumdar noted that India’s economic growth for FY25 is expected to align with Deloitte’s January forecast of 6.5-6.8%, though growth for FY26 could be revised from the agency's earlier estimate of 6.7-7.3%.

"While trade may impact growth, there is optimism that the effect will be limited, as India is now strongly committed to securing a bilateral agreement with the US," she said.

Majumdar and her team at Deloitte are slated to release their latest India economic outlook later this week.

"The US is eager to strengthen trade relations with India, as evidenced by J.D. Vance's recent visit. His trip highlights the US's desire for closer ties, especially as it increasingly confronts China," she said.

"This evolving dynamic is likely to work in India's favour," she added.

Earlier in April, the US imposed a 27% reciprocal tariff on Indian goods in response to India’s 52% average duty on US imports, part of a broader effort to address trade imbalances.

However, a few days later, the US reduced the tariff to 10%, providing temporary relief to India and other partners.

"As the situation stabilizes, India is likely to benefit from ongoing trade tariffs. If an agreement is reached by the fall, most reciprocal tariffs are expected to be neutralized," Majumdar said.

She highlighted that the US views India as a key partner in Asia, particularly as it competes with China on multiple fronts.