Incentives for India Inc. in the Budget are in sync with the underlying logic of the last five years

Finance Minister Nirmala Sitharaman.

• Budget cuts costs, boosts public investment, and offers sector tax incentives
• Customs simplified, IT services get tax clarity, data centres receive tax breaks
• SMEs to benefit from Rs 10,000 crore fund and cluster upgrades

Did our AI summary help?

Budget proposals provide a fillip to India Inc’s investment plans through three routes: cutting back on compliance costs, tax incentive package for specific sector and an increase of more than 10% in public investment which will create opportunities for private sector.

All three approaches have been running themes through successive budgets of the NDA government, particularly after the outbreak of Covid-19.

Customs processes see big changes

The highlight of the compliance and regulatory easing is in customs processes to encourage global trade. For example, regular importers with a trusted supply chain can expect the incidence of verification of cargo when they import to come down.

The emphasis on trust and a scale back in intrusive processes are the standout features of this approach. For example, the customs warehousing framework will be improved through self-declarations, electronic tracking and risk-based audit.

IT Services and data centres get a boost

IT-Services was recognized for its role in cushioning India’s macroeconomic environment through its exports in the wake of tariff-related disruption. The budget identified an increase in services to 10% of the global share by 2047 as a long-term goal.

To realise this goal, IT-Services got the benefit of a safe harbour shield which should provide certainty in tax matters and encourage investment Henceforth, all services will be clubbed under a single category with a common safe harbour margin of 15.5%. This is likely to provide much needed tax certainty and remove an impediment to potential investments.

Data centres are the focal point

Data centres, which are globally in the midst of an investment boom, have been a big tax

break. Their construction is a part of parcel of the AI-related investment frenzy.

Going forward, there’s’ a tax holiday till 2047 to any foreign company which provides cloud services globally using data centres located in India.

Tightening integration into global supply chains

To enhance India Inc’s integration into global supply chains, a five-year exemption from income-tax has been provided to any non-resident who provides capital goods etc. to any toll manufacturer who operates in a bonded zone.

This budget proposal should be seen as a continuing bet on the transformational role of fiscal incentives in enhancing the share of manufacturing in India’s GDP. While the 2026-27 budget, laid considerable emphasis on the services sector, the government clearly upbeat about the potential of the manufacturing sector.

SMEs remain a focus area in view of their employment intensity

SMEs are likely to receive a boost through an SME Growth Fund with a corpus of Rs 10,000 crore that has been proposed.

Legacy industrial clusters are set for a revival through a new scheme which will upgrade their infrastructure and technology.

Public investment remains a key driver of growth

Post-Covid, union budgets sharply stepped allocation towards public capital expenditure which then emerged as a key driver of economic growth There’s no let up in that approach. An allocation of Rs 12.2 lakh crore has been made for public capex in 2026-27, a record level. This investment is expected to crowd-in private investment.

When the three approaches are seen in conjunction, the union budget’s underlying logic in boosting investment by India Inc. shows a high degree of consistency over the last five years.