Union Budget should boost public capex, contain borrowing costs

Subscribe to enjoy similar stories. The Union Budget, to be unveiled on 1 February, comes in the wake of a strong performance by the Indian economy in 2025, despite geopolitical tensions and the US tariff onslaught. India’s GDP growth was aided by sizeable monetary easing in the form of policy rate cuts and liquidity support, aiding the flow of credit and supporting consumption.

The central government also chipped in on the fiscal front, with personal income tax relief and GST rate cuts across a large number of items. A buoyant domestic economy, coupled with a strong government push for infrastructure development, and reasonably high-capacity utilisation in many sectors offered a favourable backdrop for Indian companies to undertake sustained capital expenditure (capex). However, a broad-based pick up remained elusive, amid heightened global uncertainty and weak merchandise export growth.

This reflects a continuation of the scenario seen in the post-covid period, and has led to corporates strategically focusing on value addition, while upgrading and modernising their capabilities. Listed entities have ramped up the pace of investments. Capex of a sample of 1,600 non-financial entities has grown at a 10-year CAGR of about 9% (in nominal terms), and after a pandemic-induced pause, investment rebounded sharply.

Cumulative capex during FY2023–FY2025 surged nearly 60% over the three years preceding covid (FY2018–FY2020). Corporate balance sheets have strengthened significantly over the past decade. The total debt-to-OPBDITA (operating profit before depreciation, interest, tax, and amortization) ratio improved to 2.1x in March 2025, from 3.4x in March 2016.