OPINION Budget 2026: Four strides towards Aatmanirbhar Bharat

.

• Budget targets manufacturing, exports, and private investment for Viksit Bharat
• Outlay for electronics manufacturing doubled; incentives for clean energy inputs
• MSMEs gain from new growth fund, TReDS mandate, and dedicated industrial parks

Did our AI summary help?

By Gurpreet Chhatwal

The Union Budget for 2026-27 arrives with a familiar refrain: India will dare to rev up its manufacturing engine while staying on the fiscal prudence road—in sync with the Viksit Bharat vision.

The pronouncements weave three conceptual strands to pitch a medium-term blueprint for the manufacturing sector: a decisive push to deepen domestic capabilities, continuation of heavy-duty infrastructure spending, and financial measures to help the private sector gain confidence to invest at scale.

Though many of the initiatives are medium-term in nature, it is imperative that the first half of next fiscal sees them move from paper to practice to counter an uncertain global landscape.

Incentivising private investment

The central government has outlined a vision to achieve manufacturing share at 25% of gross domestic product (GDP) by 2035 against the share of ~17% seen last year. This necessitates strong thrust from the private sector to meaningfully uplift investments across strategic sectors.

There are multiple such impetuses to private sector investments in this year’s budget.

First of these is maintaining momentum on the success stories.

Doubling of the outlay on electronics component manufacturing to Rs 40,000 crore over six years through 2032, builds further on the success of the PLI scheme in advancing electronic manufacturing over the last five years. This is likely to ramp up domestic value addition to 35% from the current 15-18%.

Further, the rationalisation of import cost of critical minerals and raw materials through duty structure should enable cost reduction in value chains in several new-age sectors. To wit, the exemption from basic customs duty (BCD) granted to various clean energy inputs such as capital goods for lithium-ion cell manufacturing, sodium antimonate used to make solar glass, permanent magnets used in wind power, and goods imported for nuclear power projects.

Conditions necessary to make a success of rare earth corridor

From a resource perspective, the budget extends financial and policy support for dedicated rare‑earth corridors in mineral‑rich states. However, success here will depend on sourcing of affordable supply of rare‑earth oxides and access to advanced processing technologies.

Criticality of the data centre tax incentive

The data centre incentives illustrate the budget’s dual focus on traditional manufacturing and emerging, technology-driven industries. The government has proposed a tax holiday till 2047 for foreign cloud service providers setting up data centres in India, along with a 15% safe-harbour on cost for India-related entities. This can materially boost the country’s attractiveness as a global data centre hub, while improving tax certainty and long-term foreign capital inflows.

Second, the allocation towards infrastructure is higher by 18% over 2026RE to Rs 11.89 lakh crore (including IEBR and GIA). The budget continues to lay emphasis on building physical infrastructure in railways, roads and renewable energy through higher allocations. This should help address the challenge on high logistics cost for the manufacturing sector. India’s current logistic cost stands at ~8% of GDP.

Easing credit for MSMEs

Third, for MSMEs, mandating TReDS as the transaction settlement platform for all purchases by CPSEs can be a big positive. In addition, a dedicated Rs 10,000 crore SME Growth Fund will provide capital to promising entrepreneurs, while the Credit Guarantee Fund Trust for Micro and Small Enterprises expand its guarantee cover for invoice discounting.

The development of industrial and manufacturing parks for MSMEs has been a longstanding demand. Such parks, as announced for textiles and chemical sectors, with ready-to-use infrastructure, common utilities, testing facilities and regulatory clearances, can lower upfront capital costs and shorten project gestation periods.

Fourth, the financial measures to allow banks and NBFCs to lend for capacity building. In infrastructure lending, the Infrastructure Risk Guarantee Fund will help provide calibrated partial credit guarantees to lenders.

Such small but relevant measures continue to emphasise the government’s thrust on achieving cost-competitiveness across the value chain.

And results become increasingly evident as policies mature, reflecting the government's efforts to strengthen the manufacturing sector.

That said, the fast-evolving global, technological and commodity dynamics will bear watching.

So far, government policies, capex incentives and a favourable business cycle have been supportive.

The government needs to ensure continued improvement in ease of doing business and logistics to sustain capex in the long run. This calls for policy paths to be designed in sync.

In sum, the budget reaffirms the government’s steadfast focus on economic development, while injecting fresh legs for the Viksit Bharat marathon.

The efficacy will hinge on how quickly the schemes move from announcement to implementation, how effectively the ministries coordinate, and whether the private sector feels confident to commit capital.

(The author is Chief Operating Officer, Crisil Limited. Views are personal and do not represent the stand of this publication.)