Union Budget 2026-27: What is capital budget, its key components, why it matters? Details here

Budget 2026 | Union Finance Minister Nirmala Sitharaman’s presented her ninth consecutive Budget in the Parliament on February 1 2026. The Finance Minister emphasised that the government has consistently chosen reform over rhetoric and addressed global uncertainty.

But what exactly is the capital budget, what are its key components, and why does it play such a crucial role in shaping the economy? Here’s a simple explainer to help you decode its importance.

What is a Capital Budget?

It refers to a government's financial plan for long-term investments, focusing on creating infrastructure such as roads, hospitals, buildings, and machinery through capital receipts rather than day-to-day revenue. It aims to boost economic growth as it involves strategic, non-recurring investments that enhance the nation's productive capacity. 

What does the Capital Budget consist of?

The Capital Budget tracks Capital Receipts (loans, assets, sales, divestment) and Capital Expenditure (asset creation, loans to states, investments).

• Capital Receipts: It refers to the money that creates a liability or reduces a financial asset for the government. Examples of CR include market loans, loans from foreign entities, disinvestment proceeds from selling government shares in PSUs, and recoveries of loans. 
• Capital Expenditure: This is the spending that creates physical or financial assets or reduces financial liabilities. This involves spending on long-term assets that yield future returns or reduce liabilities. Examples of CE are infrastructure projects, acquiring assets like land and machinery, investments in government companies, loans and advances to states or PSUs, and repayment of borrowings. 

Why is the Capital Budget important?

Capital Budget is important for driving long-term economic growth, job creation, and building essential infrastructure that benefits society for decades. Besides funding essential public works, capital expenditure provides a significant boost to the country's economic activity. 

Capex can help an economy recover from downturns or achieve sustained growth by creating demand for goods and services and encouraging private sector investment. Large-scale infrastructure projects initiated via the capital budget create employment opportunities for engineers, laborers, and suppliers in the short term and support long-term job growth by fostering a better business environment. 

Since the capital budget accounts for the repayment of government loans, it reduces the overall liabilities and strengthens the government's financial position and also boosts investor confidence.