Capital goods, auto sectors set for Rs 23,000 crore incentive boost in Union Budget: Report

Support will be provided for manufacturing these niche components with at least 50 percent domestic value addition, a move that could also open up export opportunities

• India plans Rs 23,000 crore incentives for domestic capital goods manufacturing
• Rs 14,000-16,000 crore for construction equipment, Rs 7,000 crore for auto sector
• Schemes aim to cut import dependence and strengthen supply chain resilience

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India is weighing incentive packages worth up to Rs 23,000 crore in the upcoming Union Budget to fast-track domestic manufacturing of high-value capital goods and reduce dependence on imports, people aware of the discussions told the Economic Times.

Government officials cited by the Economic Times said the schemes are under preparation and could be announced in the Budget. A senior official told the Economic Times that a Rs 14,000-16,000 crore incentive programme for construction equipment is close to finalisation, while a separate Rs 7,000 crore scheme aimed at building resilient global value chains (GVCs) for the automobile sector is also being readied.

The proposed initiatives are intended to build on earlier efforts to strengthen the capital goods ecosystem, the Economic Times noted. In January 2022, the Ministry of Heavy Industries rolled out the second phase of the Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector, with an outlay of Rs 1,207 crore to support shared technology development and testing infrastructure.

Budgetary measures in recent years have also focused on localisation. In the 2025-26 Union Budget, customs duty exemptions were expanded to cover 35 additional capital goods used in electric vehicle battery manufacturing and 28 items for mobile phone battery production, steps that the Economic Times said were aimed at boosting domestic lithium-ion battery manufacturing.

Officials told the Economic Times that the proposed construction equipment package will focus on indigenising high-end machinery such as tunnel boring machines and cranes, with the objective of cutting import dependence. Nearly half of the sector's components by value are currently imported from countries such as China, Japan, South Korea and Germany.

Restrictions imposed by China on tunnel boring machine exports had earlier disrupted major infrastructure projects in India, the Economic Times reported. Those curbs were lifted last year following high-level diplomatic engagements between New Delhi and Beijing. Key imported items in this segment include hydraulics, undercarriages and advanced components such as electronic control units (ECUs), sensors and telematics.

"This scheme will lower the import of high-tonnage and fully built machinery," an official told the Economic Times, adding that the new programmes are designed to build on gains achieved under existing incentive frameworks.

The proposed GVC scheme for the automobile sector is expected to prioritise local manufacturing of advanced components such as advanced driver assistance systems (ADAS), 360-degree cameras and sensors, sources told the Economic Times. Support will be provided for manufacturing these niche components with at least 50 percent domestic value addition, a move that could also open up export opportunities.

The Economic Times further reported that subsidies for the purchase of capital goods such as moulds and power tools used in auto component manufacturing are likely to be included. The scheme may also back the creation of prototyping centres to enable pre-production testing, with the broader aim of strengthening supply chain resilience through industry collaboration.