Budget 2026 balances fiscal restraint with export-led growth push

India used its latest budget to project fiscal restraint while positioning itself for a more fragmented global trade environment, as the government seeks to sustain growth amid geopolitical and supply-chain disruptions.

Finance minister Nirmala Sitharaman set the fiscal deficit for 2026–27 at 4.3% of gross domestic product (GDP), down from a revised 4.4% in the current year, keeping the government on track toward its medium-term consolidation goal even as global growth risks persist.

Total expenditure for the year was budgeted at ₹53.47 trillion, while capital expenditure was raised to ₹12.22 trillion, up from ₹11.21 trillion in the previous year’s budget estimate, underscoring New Delhi’s continued reliance on public investment as the main growth lever.

Net market borrowing through government securities was budgeted at ₹11.73 trillion, a key figure for bond markets amid volatile global interest rates.

Revenue assumptions remained conservative. Net tax receipts were projected at ₹28.67 trillion, while total receipts excluding borrowings were estimated at ₹36.52 trillion. The government also lowered its debt-to-GDP projection to 55.6% for 2026–27, from 56.1% a year earlier, signaling continuity.

The fiscal stance was framed against a fragile global backdrop.

“Today, we face an external environment in which trade and multilateralism are imperiled and access to resources and supply chains are disrupted,” Sitharaman said in her budget speech.

At the same time, she underscored the need for external engagement, saying: “As a growing economy with expanding trade and capital needs, India must also remain deeply integrated with global markets, exporting more and attracting stable long-term investment.”

The emphasis on exports and manufacturing sits alongside a broader push to deepen domestic capacity. The budget retained a bias toward capital formation, with infrastructure, logistics and industrial investment positioned as the main channels through which India intends to improve competitiveness.

Sitharaman argued that a declining debt ratio would “gradually free up resources for priority sector expenditure by reducing the outgo on interest payments,” reinforcing the government’s longer-term consolidation path.

At the same time, the budget makes clear that fiscal restraint is being paired with a selective industrial and export push.

“As a growing economy with expanding trade and capital needs, India must also remain deeply integrated with global markets, exporting more and attracting stable long-term investment,” Sitharaman said.

Manufacturing as trade strategy

That approach runs through the budget’s industrial proposals. Under what the government describes as its first “kartavya” to accelerate and sustain growth, the budget lays out interventions across six areas, beginning with scaling up manufacturing in seven strategic and frontier sectors.

Among the most prominent announcements is Biopharma SHAKTI, a ₹10,000-crore program over five years aimed at positioning India as a global manufacturing hub for biologics and biosimilars. The initiative includes three new National Institutes of Pharmaceutical Education and Research, upgrades to seven existing NIPERs, the creation of more than 1,000 accredited clinical trial sites, and strengthening of the Central Drugs Standard Control Organisation through a dedicated scientific review cadre.

Semiconductors form another pillar. Building on the first phase of the India Semiconductor Mission, the government announced ISM 2.0, with a focus on producing equipment and materials, developing full-stack Indian intellectual property, fortifying supply chains, and expanding industry-led research and training centers.

Electronics manufacturing received a further boost with the expansion of the Electronics Components Manufacturing Scheme. Launched in April 2025 with an outlay of ₹22,919 crore, the scheme has already attracted investment commitments at double the target, prompting the government to raise the outlay to ₹40,000 crore.

The budget also addresses upstream vulnerabilities. Dedicated Rare Earth Corridors are proposed in Odisha, Kerala, Andhra Pradesh and Tamil Nadu to support mining, processing, research and manufacturing. Chemical import dependence is being targeted through a scheme to establish three cluster-based chemical parks, while capital goods capacity will be strengthened through new hi-tech tool rooms and a scheme for construction and infrastructure equipment manufacturing.

For logistics, the government announced a ₹10,000-crore Container Manufacturing Scheme over five years to create a globally competitive domestic container ecosystem, an area exposed during recent supply-chain disruptions.

Textiles, clusters and MSMEs

Labor-intensive sectors feature prominently. The textile package combines fiber self-reliance, cluster modernization, skilling and sustainability through a five-part integrated program, alongside a proposal to set up mega textile parks in challenge mode and a Mahatma Gandhi Gram Swaraj initiative to strengthen khadi, handloom and handicrafts with global market linkages.

Legacy manufacturing is not being ignored. A scheme to rejuvenate 200 older industrial clusters aims to improve competitiveness through infrastructure and technology upgrades.

For smaller firms, the budget positions MSMEs as “Champions” through a three-pronged framework. A ₹10,000-crore SME Growth Fund will provide equity support, while the Self-Reliant India Fund will be topped up with ₹2,000 crore to sustain risk capital for micro enterprises. Liquidity measures include mandatory use of the TReDS platform for CPSE purchases from MSMEs, credit guarantees for invoice discounting, integration of GeM with TReDS, and the securitisation of TReDS receivables to deepen secondary markets.

Professional support is also being institutionalized. Accounting and company secretary bodies will help train a cadre of “Corporate Mitras” in Tier-II and Tier-III towns to assist MSMEs with compliance at lower cost.

Infrastructure and city-led growth

Public investment remains the budget’s primary growth lever. Capital expenditure is set to rise to ₹12.2 trillion in 2026-27, up from ₹11.2 trillion in the previous year’s budget estimate.

To crowd in private investment, the government proposed an Infrastructure Risk Guarantee Fund to provide partial credit guarantees during the construction phase. Asset recycling will be accelerated through dedicated REITs for CPSE real estate.

Logistics received a multimodal push. New freight corridors are planned between Dankuni and Surat, 20 national waterways will be operationalized over five years, and coastal shipping incentives aim to double the share of inland waterways and coastal cargo to 12% by 2047. A ship-repair ecosystem for inland waterways will be developed in Varanasi and Patna.

Cities are being repositioned as growth engines through City Economic Regions, with ₹5,000 crore per region proposed over five years to fund reform-linked development plans. Seven high-speed rail corridors are planned to act as “growth connectors” between major urban centers.

Energy, climate and critical inputs

Energy security is addressed alongside climate goals. The budget allocated ₹20,000 crore over five years for Carbon Capture, Utilization and Storage, targeting deployment across power, steel, cement, refineries and chemicals.

The budget also sharpens its focus on nuclear energy as a long-term source of clean, reliable baseload power. Customs duty exemptions on nuclear power equipment have been extended until 2035, pointing to continued policy support for capacity expansion and domestic manufacturing in the nuclear supply chain.

The emphasis reflects the government’s view of nuclear power as a stabilizing complement to renewables in meeting rising electricity demand while containing emissions.

Customs duty exemptions are also extended to capital goods for lithium-ion battery manufacturing, sodium antimonate for solar glass, and capital goods used to process critical minerals, reinforcing efforts to reduce import dependence in energy transition inputs. Biogas-blended CNG will receive excise relief, while incentives are being extended to civil and defense aviation manufacturing, linking energy policy with broader industrial and strategic objectives.

Education, health and services capacity

Education and health are framed as capacity-building rather than purely social spending. Five University Townships will be developed along industrial and logistics corridors, while every district will receive a girls’ hostel at higher-education STEM institutions through capital support. Four major telescope facilities will be set up or upgraded to promote astrophysics and astronomy.

On skills, a high-powered Education-to-Employment and Enterprise Standing Committee will be set up to position services as a core driver of growth, with a stated goal of capturing a 10% global share in services by 2047. The committee will assess the impact of emerging technologies, including AI, on jobs and skills.

Healthcare initiatives include upgrading allied health institutions and adding 100,000 allied health professionals over five years, training 150,000 caregivers annually, and establishing five regional hubs for medical value tourism. AYUSH receives targeted investment through new institutes, upgraded testing labs and expansion of the WHO Global Traditional Medicine Centre in Jamnagar.

Mental health capacity is being expanded with a proposed NIMHANS-2 in north India, upgrades to institutes in Ranchi and Tezpur, and a 50% increase in emergency and trauma care capacity in district hospitals.

Digital economy, IT and data infrastructure

The budget treats digital infrastructure and technology services as core economic inputs, reinforcing continuity in national programs covering artificial intelligence, quantum technologies, research funding and innovation.

The more substantive shift comes through tax design. The budget simplifies how technology services are classified by bringing software development, IT-enabled services, outsourced research and back-office operations under a single Information Technology Services category. For this category, a fixed 15.5% safe harbor margin has been prescribed, giving companies certainty on transfer pricing.

Eligibility for this regime has been expanded sharply. The revenue threshold for opting into the safe harbor framework has been raised from ₹300 crore to ₹2,000 crore, allowing larger firms to qualify. Approvals will be granted through an automated, rule-based process, reducing discretionary scrutiny and compliance delays.

For companies seeking formal upfront certainty, the budget also proposes faster processing of unilateral advance pricing agreements for IT services.

Data centers are explicitly recognized as strategic infrastructure. Foreign cloud providers using data centers located in India to serve global customers will be eligible for a tax holiday extending up to 2047, subject to the condition that services sold within India are routed through a domestic entity.

To reduce uncertainty in intra-group transactions, the budget also proposes a 15% safe harbor margin for related-party data-center services. Additional measures include incentives for bonded-warehouse storage of electronic components and tax relief for toll manufacturing arrangements, aimed at easing logistics and lowering operational costs.

Markets and taxation signals

Sitharaman said securities transaction tax (STT) on futures will rise to 0.05% from 0.02%, while STT on options premium and exercise will increase to 0.15%.

The Indian stock markets opened in a rare special Sunday session on Budget Day and fell sharply, with benchmark indices sliding and key exchange and brokerage stocks dropping as much as about 10–13% after the government raised transaction taxes on derivatives and lacked fresh incentives to boost foreign investment.

Direct tax reforms include the rollout of the Income-tax Act, 2025 from 1 April, simplified forms, expanded timelines for revised returns, and a one-time foreign asset disclosure scheme for small taxpayers. Minimum alternate tax will become a final tax at a reduced rate of 14%, with limited set-off of accumulated credits.

Customs reforms focus on tariff simplification, export facilitation and trust-based clearance systems, including expanded authorized economic operator benefits, longer validity of advance rulings, and a move towards warehouse-operator-centric compliance.

Courier export caps have been removed to help small businesses and startups access global markets, and SEZ manufacturing units will be allowed limited sales into the domestic tariff area at concessional duty rates as a one-time relief amid global trade disruption.