Fiscal Spending and Corporate Earnings | Quick ₹eads

by Karnivesh | 24 February 2026

In a glass-walled Mumbai boardroom, a CFO studies the Union Budget slide on the screen. One number has everyone’s attention: government capex of over ₹11 lakh crore and a fiscal deficit still on the way down. The obvious question in the room is not “Is this fiscally prudent?” but “How much of this will show up in our order book and P&L over the next 12–24 months?”

From fiscal deficit to order book

Over the past few years, India has quietly rewritten its fiscal playbook. Instead of throwing money at subsidies and short‑term consumption, New Delhi has been tilting hard towards capital expenditure roads, rail, ports, power and defence.

Total government expenditure in FY25 is estimated at about ₹48.2 lakh crore, up 8.5% over the previous year. Within this, revenue expenditure (salaries, subsidies, interest) is set to grow a modest 6.2%, while capital expenditure is budgeted to jump 17.1% to ₹11.11 lakh crore. The Economic Survey notes that the Centre’s effective capex has risen from a pre‑pandemic average of about 2.7% of GDP to roughly 4% in FY25, a structural shift towards asset creation.

Even as this is happening, fiscal consolidation is on track. The fiscal deficit for FY25 came in at about 4.8% of GDP ₹15.77 lakh crore of red ink on a nominal GDP of roughly ₹330 lakh crore with a glide path to 4.4% in FY26. The way the government is squaring this circle is crucial for corporates: it is compressing revenue expenditure from 13.6% of GDP in FY22 to 10.9% in FY25, and using that “freed” space to fund more productive capex.

How capex feeds corporate earnings

Step out of North Block and onto a national highway site in Uttar Pradesh. Every rupee of government capex there becomes revenue for someone: EPC players laying roads, cement and steel companies supplying materials, equipment makers selling cranes and trucks, and banks financing working capital.

Union Bank’s analysis of 635 large listed companies shows exactly this pattern. Corporate capex has grown about 20% year‑on‑year, with private sector capex rising from ₹7.06 lakh crore in FY23 to ₹8.4 lakh crore in FY24 as firms respond to public spending and stronger balance sheets. The Union government’s own capex has doubled from an average 1.7% of GDP in 2008–20 to about 3.0% during 2021–25, focused on infrastructure sectors like roads, railways and defence.​

On the earnings side, sectors closest to the government’s cheque book have seen outsized profit growth. Union Bank’s sectoral breakdown for recent quarters shows net profit growth of 277% in construction‑real estate, 28% in automobiles, 57% in consumer durables, 58% in electrical equipment and 41% in pharma. When the petroleum sector’s drag is excluded, overall corporate PAT growth swings from –1% to +14% year‑on‑year in Q1 FY25 a vivid example of how infra‑linked names can offset weakness elsewhere.​

The Q4 capex surge and GDP bump

The connection between fiscal spending and the corporate P&L is visible even at the macro quarterly level. In FY25, India’s capital expenditure reached about ₹10.52 lakh crore, exceeding revised estimates by ₹34,000 crore. A large part of this came via a ~33% year‑on‑year surge in public capex in Q4 FY25, as ministries accelerated project awards and payments after a slow election‑affected first half.​

That splurge mattered. Q4 FY25 GDP growth printed at 7.4%, up from 6.4% in Q3, with Union Bank explicitly attributing the upside surprise to this capex push. For corporates, those same months showed up as stronger order inflows for construction, cement, capital goods and logistics companies, and as healthier fee income and loan demand for banks exposed to infrastructure and corporate lending.​

You can see the policy intent continuing. For FY26, the Budget sets central capex at about ₹11.21 lakh crore, a 10% increase over the revised ₹10.18 lakh crore for FY25, and adds a ₹1.5 lakh crore 50‑year interest‑free loan window to states specifically earmarked for capex and reforms. That is essentially a forward earnings signal for infra‑heavy sectors over the next two to three years.

Crowding in private capex and profits

Fiscal spending does not just show up in L&T‑style order books; it also changes corporate investment behaviour. RBI data on project sanctions indicates envisaged capex of about ₹2.45 lakh crore in FY25 from bank‑ and FI‑financed projects, with total project costs financed touching ₹3.91 lakh crore, a new high. Union Bank’s note calls this a “K‑shaped” recovery in corporate capex: infrastructure, power, metals, autos, cement and construction materials are leading, while sectors like textiles and fertilisers are still cautious.​

This crowding‑in is visible in sector earnings. Construction‑real estate and allied materials, autos, electrical equipment and consumer durables are among the key drivers of corporate profitability growth, leveraging both government projects and rising private demand. At the same time, refineries show a divergence: heavy capex but weaker profitability because of global margin cycles and pricing controls. That nuance is important fiscal spending can support revenues, but margins still depend on industry structure and regulation.​

Fiscal prudence and tax take: the other side of earnings

On the revenue side of the Budget, the state increasingly leans on corporate performance. PRS India notes that corporation tax collections are budgeted to grow 12% in 2024‑25, with income tax up 13.6% and GST about 11%. In 2023‑24, actual income tax collections were 25% higher than the previous year, reflecting both formalisation and rising profitability. In many ways, fiscal room for future capex is being bankrolled by the same corporate earnings that current capex helps to generate.​

But fiscal consolidation has costs too. Analysts point out that keeping the deficit at 4.8% of GDP despite higher capex has required cutting or slowing some forms of revenue expenditure, such as certain subsidies and departmental spends. For sectors dependent on those transfers rural consumption plays or subsidy‑linked industries the link between fiscal policy and earnings can be negative in the short term even as infra‑linked names benefit.

What this means for reading earnings in India

For an investor or corporate planner in India’s current cycle, three practical lenses help connect fiscal numbers to earnings:

• Follow the capex‑to‑GDP ratio, not just the deficit. A move from 2–3% of GDP to ~4% in effective capex is far more relevant for infra, materials, capital goods and corporate banks than whether the deficit is 4.8% or 4.4%.

• Track sectoral beneficiaries. Government and PSU capex has been concentrated in roads, railways, power (especially renewables), defence and urban infrastructure. That is where the strongest profit growth has emerged construction‑real estate, autos, electrical equipment, cement and allied sectors.

• Watch for crowding‑in signals. Rising project sanctions, 20% growth in private capex, and improved corporate balance sheets suggest that public spending is catalysing, not crowding out, private investment. When both engines run together, earnings leverage to fiscal spending is highest.

India’s fiscal story right now is not just about a narrower deficit; it is about a deliberate choice to swap easy revenue spends for harder, longer‑gestation capex. For corporates, that choice is showing up as fuller order books, healthier top lines and, in the right sectors, multi‑year earnings upgrades. The bridge between the Budget speech and the quarterly result is paved with capital expenditure and in this phase of India’s growth, that bridge is carrying more and more corporate profits across.