The article was first published in The Economic Times - Manufacturing.com on February 02 2026. Please click here to read the article.
The Indian Union Budget 2026 arrives at a pivotal juncture for the global economy-an era defined by slowing growth across major markets, volatile commodity cycles, and geopolitical tensions that continue to reshape supply chains. Against this backdrop, the FM unveiled a Budget crafted not merely to insulate India from global headwinds, but to accelerate the nation’s march toward the next phase of industrial and technological leadership.
A defining feature of this year’s Budget is the bold thrust to expand manufacturing across seven high-potential sectors: biopharma, semiconductors, electronics, infrastructure, chemicals, critical minerals, and textiles. Recognising the ongoing realignment of global supply chains, the Government has intensified efforts to position India as a leading hub for electronics and semiconductors.
The launch of India Semiconductor Mission 2.0 marks one of the most decisive pushes towards creating a self-reliant, end-to-end semiconductor ecosystem from equipment to materials, from IP design to talent development. It is also a signal to the world that Making India to become one of the leaders in semiconductor manufacturing is a strategic national priority. The increased outlay of ₹40,000 Cr for Electronics Component manufacturing system enables India to become a preferred destination for global electronics and component manufacturers. The investment will help India to localise critical electronic components and reduces vulnerability for domestic manufacturers to global supply chain shocks. This also perfectly complements ISM 2.0 mission by strengthening the broader electronics backbone needed for a world-class semiconductor ecosystem.
In parallel, the provision of dedicated central financial support for mineral-rich states will enable the development of critical mineral processing capabilities, securing essential raw materials for advanced and emerging technologies. Collectively, these measures are poised to transform India’s industrial landscape, stimulating large-scale employment, enhancing export competitiveness, and ensuring long-term resilience in sectors that are vital to both economic growth and strategic security.
The Budget highlights the vital importance of capital goods in driving India’s industrial growth, introducing measures designed to strengthen the backbone of domestic manufacturing. Key proposals include introducing new schemes which encourages domestic production of high value and technologically advanced construction and infrastructure equipment, reducing reliance on imports and fostering indigenous capabilities. Coupled with a continued rise in capital expenditure, these interventions are expected to stimulate demand for machinery and industrial equipment, generating a strong multiplier effect across the manufacturing value chain.
The Budget also enables MSMEs who are the backbone of manufacturing industry in the country with increased allocation to SME Growth Fund, the Self-Reliant India Fund (2021) and Liquidity Support through TReDS. Budget’s emphasis on professional Institutions to develop ‘Corporate Mitras’ especially in Tier-II and Tier III towns will help address the capability gaps in MSMEs which is the need of the hour.
To address logistics connectivity issues to bring in competitiveness, the Budget has continued its focus rightly on building the infrastructure with its increased outlay of ₹12.2 lakh cr. In addition, more dedicated freight corridors, operationalising new waterways and launching a Coastal Cargo Promotion Scheme to increase the share of inland waterways and coastal shipping from 6 per cent to 12 per cent by 2047 will help optimise logistics costs.
FM’s focus to promote container manufacturing and Sea plane manufacturing will immensely help addressing both the objectives of logistics efficiency enhancement and promoting manufacturing activity. A suite of technology-led customs reforms is also underway, including the rollout of a unified Customs Integrated System, enhanced AEO provisions, and a single digital window for cargo clearances. These measures aim to reduce logistics friction and improve trade facilitation.
The Budget places strong importance on the strategic integration of artificial intelligence across national missions, infrastructure, and workforce skilling. In a landmark move, foreign cloud service providers operating through Indian data centers will receive a tax holiday until 2047, an incentive designed to dramatically expand India’s cloud and compute backbone.
This strengthened digital infrastructure is expected to accelerate the adoption of AI-driven manufacturing, advanced automation, and next generation industrial systems. For industry, the measure translates into lower operating costs, faster deployment of cutting-edge technologies, and enhanced global competitiveness, positioning India at the forefront of the AI-powered industrial revolution.
On the indirect tax front, the Budget continues its calibrated reform agenda. Key announcements include customs duty concessions on capital goods used for manufacturing lithium-ion cells for battery energy storage systems, signaling India's commitment to long-term energy security and a sustainable energy transition.
Sector-specific duty exemptions for nuclear power, aircraft components, and critical mineral processing are set to lower costs, boost domestic production, and reduce import dependence. These measures will accelerate clean energy deployment, strengthen India’s aerospace manufacturing, and secure raw materials for high-tech industries, enhancing competitiveness, innovation, and industrial resilience .
The Budget also introduces key amendment to revise the place-of-supply provisions for intermediary services aligning with the Council’s decision to treat such services as exports when supplied by an Indian supplier to an overseas client, thereby simplifying cross-border taxation and granting service exporters the full benefit of zero-rating under GST. This change addresses a long-standing demand from the services sector for clarity and consistency in tax treatment. With these reforms, the Government has focused to enhance ease of doing business, improve tax certainty, and strengthen India’s appeal as a competitive hub for global services and trade.
Overall, this Budget is India’s declaration of intent: a clear commitment to evolve from a fast-growing economy into a stable, technology-driven, manufacturing-led global force - strengthening its position in global value chains and shaping its path toward long-term industrial leadership.
