Macroeconomic stability gives capacity to respond with higher capex if needed: Expenditure Secretary

The Union Budget 2026-27 is being seen as credible and realistic for its fiscal math. In an interview with Business Today, Expenditure Secretary V Vualnam says that it has involved a careful analysis of each expenditure item. He underlines that the increase in government capex is based on the assessment of the requirement of infrastructure creation and says that the fiscal deficit target of 4.3% of the GDP for FY27 is a very well-set target. Edited excerpts: 

The Centre’s capex has increased in FY27 again. While government capex has been taking forward the growth momentum, is this increase also because the government feels that private capex is not going to see much of a recovery in FY27? 

No, private capex, if it comes will come for items or infrastructure where the private sector wishes to invest. Railway lines, national highway, defence – all these are where public sector capex takes place. It’s based on the assessment of the requirement of public expenditure for infrastructure creation. I am quite confident that private capex will pick up. I am also hearing that private sector is gearing up for that, but they will invest for their type of private capex. The two are maybe complementary, but definitely not substitutes. There is also private sector involvement in public capex such as in PPP projects, like in the national highways, where there is active private sector involvement. Even the shipbuilding mission, will have active private finance and involvement. But over and above, the higher capex reflects the overall focus on infrastructure creation. 

Can the government to keep sustaining this kind of an increase in capex every year? 

I am sure it can be. But we will continually do an assessment of how much more of infrastructure is there to be created, and also the financing pattern. Where PPP projects are coming up, even if the public capex goes down, the Budget goes down, the infrastructure creation will move ahead. The commitment is to provide funds required for the public infrastructure creation. Within that, whether the Union Budget has to keep on providing, we are regularly monitoring and we will provide whatever is required. Fortunately, with the macroeconomic stability, we have the capacity to respond. We will respond to the level that is required. 

One of the questions that have also been raised is on the fiscal deficit and whether the reduction proposed for FY27 at 4.3% is very marginal. What is your view given that targets have been much more ambitious in past years? 

No, I think it's very carefully thought decision. On the other hand, there will be some experts who will even say that don't be bound down by fiscal targets and fiscal consolidation all the time. It's a balance of all the various views. And 4.3% is an ideal number which has been fixed as a target, and it should enable us to meet whatever expenditure requirements are there, and at the same time, it reflects the government's commitment to fiscal prudence. I think it's a very well-set fiscal deficit target. 

The Sixteenth Finance Commission has recommended that Centre should reduce its fiscal deficit to 3.5% of the GDP by 2031. Is it something that would be considered? 

We would definitely look at fiscal consolidation, but we will not look at it in isolation, that a particular number has to be achieved. We will look at what are the expenditure requirements. How is the requirement of the different sectors of the economy moving, the food security, the fertiliser requirements. We will definitely not be fixed by a particular percentage or a particular number. In any case, we have moved to debt to GDP as the fiscal anchor. 

The Finance Commission has retained the devolution at 41%. But will there be any additional impact on the Centre’s finances? 

No, there will be no impact, but we would have liked it to be lower also. But the Finance Commission has, after all, the studies recommended sticking to 41% and central government has accepted it. We will work on our finances in that and overall with the revenue being streamlined, we expect the pie to be larger also. For all the states with that same percentage, they will get something much larger than what they received during the award period of the Fifteenth Finance Commission. 

The cesses will remain with the Centre? The Finance Commission has spoken of a grand bargain where the Centre could integrate a large part of cesses and surcharges in the basic tax rate… 

Those are the structures which are there. And as I said earlier, the divisible pool itself is expected and estimated to grow quite substantially compared to this five-year period, which has just ended.