Budget 2026: Allocation to states for infrastructure down 30% to ₹3 lakh crore in RE, FY26
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The Centre’s expenditure on Grants-in-Aid for the creation of capital assets, which essentially means loans to the states for capital expenditure, has come down by a whopping 30% to ₹3.08 lakh crore in the revised estimates for the current fiscal against an allocation of ₹4.27 lakh crore for this purpose in the budget estimates.
It may be noted that the Centre's public capital expenditure, too, has come down marginally to ₹10.95 lakh crore in the revised estimates for the current financial year, compared with FY26 budget estimate of ₹11.21 crore.
Under the Union Budgets, these grants are exclusively for the creation of long-term assets by the states for infrastructure such as roads, bridges, schools, hospitals, irrigation systems, and water supply systems, and are classified as capital expenditure even though they are transferred as grants.
Deep cut in the revised estimates suggests there have been delays in the execution of projects by the states and the implementing agencies, as well as a re-evaluation of the actual spending capacity. Revised Estimates are usually made mid-year to match Budget estimates with ground realities, which may include slow approvals, tendering, and incomplete projects.
January 2026
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Overall increasing trend
Analysis of past allocations under this head reveals that overall, there has been an increasing trend in allocations. In 2022-23 (actuals), the Grants-in-Aid for the creation of capital assets was around ₹3.1 lakh crores. This rose to around ₹3.7 lakh crores in the Budget Estimates for 2023-24, as the government increased support for state-level infrastructure development after the pandemic years. The allocation was further increased in Budget 2024-25, reaching approximately ₹4.15-4.20 lakh crores.
The sudden reduction in the Revised Estimates for 2025-26, therefore, indicates a departure from this trend, although it does not indicate a policy change in the direction of infrastructure spending.
Rather, the government has continued to increase overall capital expenditure in the following budgets, including Budget 2026-27, in which capex has been increased to ₹12.2 lakh crores.
Although increased allocations are a positive sign, data from the budget fine print states that the issue of timely disbursement of allocations continues to be a challenge, especially for projects implemented at the state level. The difference between Budget Estimates and Revised Estimates also points to the need for faster processing, better coordination, and greater execution capacity to fully leverage the benefits of capital grants for the creation of long-term assets.