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Infra thrust and manufacturing reforms define Budget 2026–27
Industry News- Feb 02,26
With higher public capex, three kartavya and sectoral reforms, budget aims to lift growth, jobs and investment.
Union Minister for Finance and Corporate Affairs Nirmala Sitharaman presented the Union Budget 2026–27 in Parliament, outlining a growth strategy anchored in infrastructure investment, manufacturing scale-up and institutional reforms. Prepared for the first time in Kartavya Bhawan, the Budget is guided by three kartavya—accelerating and sustaining economic growth, fulfilling aspirations by building people’s capacity, and ensuring inclusive development aligned with the vision of Sabka Sath, Sabka Vikas.
Framed as a Yuva Shakti-driven Budget, the proposals seek to balance ambition with inclusion as India navigates a volatile global environment marked by trade disruptions, shifting supply chains and rapid technological change. The Finance Minister noted that more than 350 reforms announced since Independence Day 2025—including GST simplification, labour code notifications and rationalisation of quality control orders—have laid the foundation for a more competitive and resilient economy.
Infrastructure as the growth anchor
A defining feature of the Budget is the continued emphasis on public capital expenditure. Public capex has risen sharply from Rs 2 trillion in FY2015 to Rs 11.2 trillion in FY2026 and is proposed to increase further to Rs 12.2 trillion in FY2027. The sustained push reinforces infrastructure as the primary engine of growth, with strong spillover effects expected across construction, cement, steel, capital goods and logistics.
To promote environmentally sustainable cargo movement, the Budget proposes new Dedicated Freight Corridors linking Dankuni in the East to Surat in the West, alongside the operationalisation of 20 additional National Waterways over the next five years. The first phase includes National Waterway-5 in Odisha, connecting mineral-rich Talcher and Angul with industrial hubs such as Kalinga Nagar and ports at Paradeep and Dhamra. Regional Centres of Excellence will be developed to train manpower for waterways and multimodal logistics.
Urban development is another central pillar. City Economic Regions (CERs) will be mapped based on local growth drivers, with an allocation of Rs 50 billion per CER over five years through a reform-linked financing model. In passenger mobility, seven high-speed rail corridors—including Mumbai–Pune, Hyderabad–Bengaluru and Delhi–Varanasi—are proposed as growth connectors to stimulate regional economies while promoting sustainable transport systems.
Manufacturing, defence and industrial competitiveness
Under the first kartavya of accelerating growth, the Budget targets interventions across six priority areas, including scaling up manufacturing in seven strategic and frontier sectors, rejuvenating legacy industries and creating Champion MSMEs. Customs duty rationalisation and capital goods incentives are positioned as key enablers for domestic manufacturing competitiveness.
The defence and civil aviation ecosystem is set to benefit from exemptions on basic customs duty for aircraft components, parts and raw materials, including those used in maintenance, repair and overhaul activities by defence units. These measures are expected to deepen localisation, strengthen aerospace supply chains and support India’s ambitions in defence manufacturing and exports.
Electronics and energy transition priorities receive a strong boost through extensions of customs duty exemptions on capital goods used for lithium-ion cell manufacturing, exemptions for sodium antimonate used in solar glass production, and duty relief for processing critical minerals. Together, these measures aim to reduce import dependence and improve scale and cost competitiveness across electronics, renewable energy and battery storage value chains.
Construction equipment and heavy engineering segments are expected to benefit indirectly from higher infrastructure allocations, freight corridors, ports, waterways and rail projects, which improve demand visibility and logistics efficiency for capital goods manufacturers.
Biopharma, chemicals and textiles
To position India as a global biopharma manufacturing hub, the Budget announces Biopharma SHAKTI with an outlay of Rs 100 billion over five years to strengthen domestic production of biologics and biosimilars. The initiative includes the establishment of three new National Institutes of Pharmaceutical Education and Research, the upgradation of seven existing institutes, and a network of more than 1,000 accredited clinical trial sites. The Central Drugs Standard Control Organisation will be strengthened with a dedicated scientific review cadre to align approvals with global benchmarks.
The chemicals and pharmaceutical sectors also gain from indirect tax measures, including exemptions of basic customs duty on 17 drugs or medicines and the inclusion of seven additional rare diseases for duty-free personal imports. These steps aim to improve affordability while supporting domestic manufacturing capacity.
For the labour-intensive textile sector, an integrated programme with five components has been proposed. These include a National Fibre Scheme covering natural, man-made and new-age fibres; a Textile Expansion and Employment Scheme to modernise clusters; a consolidated National Handloom and Handicraft programme; the Tex-Eco initiative for sustainable textiles; and Samarth 2.0 to upgrade skills through industry-academia collaboration.
MSMEs, services and digital economy
Recognising MSMEs as a vital engine of employment and innovation, the Budget proposes an SME Growth Fund of Rs 100 billion to create future champions, with incentives linked to scale, performance and export potential. Logistics efficiency, customs digitisation and compliance simplification are expected to lower transaction costs and improve market access for small enterprises.
The IT and digital services sector is positioned as a continuing growth engine. Software development, IT-enabled services, KPO and contract R&D will be grouped under a single category of Information Technology Services with a common safe harbour margin of 15.5 per cent. The threshold for availing safe harbour is raised from Rs 3 billion to Rs 20 billion, with approvals automated and valid for five years. Foreign cloud service providers using Indian data centres will receive a tax holiday until 2047, signalling a strong push to attract global digital infrastructure investment.
Fiscal consolidation and tax reforms
The Budget maintains a clear focus on fiscal prudence. The fiscal deficit is estimated at 4.3 per cent of GDP in FY2027, down from 4.4 per cent in FY2026, while the debt-to-GDP ratio is projected to decline to 55.6 per cent. Revised estimates for FY2026 place total expenditure at Rs 49.6 trillion, with capital expenditure of about Rs 11 trillion.
Direct tax reforms include the rollout of the New Income Tax Act, 2025 from April 2026, simplified rules and forms, rationalisation of penalties and prosecution, and expanded compliance relief for small taxpayers. Indirect tax proposals focus on simplifying customs procedures, expanding AI-enabled non-intrusive scanning and transforming customs warehousing into an operator-centric digital system to speed up cargo movement and reduce dwell time.
Union Budget 2026–27: Key announcements for industry:
- Public capital expenditure raised to Rs 12.2 trillion in FY2027, up from Rs 11.2 trillion
- Rs 100 billion SME Growth Fund proposed to create future MSME champions
- Biopharma SHAKTI launched with Rs 100 billion outlay over five years
- Seven high-speed rail corridors announced as growth connectors
- Twenty new National Waterways to be operationalised over five years
- Rs 50 billion allocation per City Economic Region over five years
- Safe harbour threshold for IT services raised from Rs 3 billion to Rs 20 billion
Union Budget 2026–27
Public Capex
Manufacturing
MSMEs
Defence
Electronics
Textiles
Infrastructure
Nirmala Sitharaman
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