IN PREVIOUS BUDGETS, corporate tax rates and personal income tax rates were reduced. Goods and Services Tax (GST) (which is outside the purview of the budget) has been rationalised. In this backdrop, there were less expectations around tax rejig in the union budget for 2026-27, while more focus was on how the government addresses the emerging challenges.
At the beginning of her budget speech, Sitharaman acknowledged the challenges and said, “today, we face an external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted. New technologies are transforming production systems while sharply increasing demands on water, energy and critical minerals.” Highlighting GST rationalisation and notification of labour codes among other reforms being rolled out, she assured that the reform express is well on its way and will maintain its momentum.
The Economic Survey 2025-26, tabled before the presentation of the union budget, had called for building up a strong domestic manufacturing ecosystem and building export competitiveness. Meanwhile, experts have also pointed out that private investments have not been picking up. “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.
Focus On Manufacturing
Laying emphasis on manufacturing, the budget announced Biopharma SHAKTI with an outlay of Rs 10,000 crore over the next five years, to build the ecosystem for domestic production of biologics and biosimilars. Building on the Semiconductor Mission (ISM) 1.0, the budget said ISM 2.0 will be launched to produce equipment and materials, design fullstack Indian IP and fortify supply chains. It is also proposed to increase the outlay under the electronics components manufacturing scheme to Rs 40,000 crore, noting the scheme which was initially launched at an outlay of Rs 22,919 crore already has investment commitments at double the target.
The budget has also proposed a scheme to support states in establishing three dedicated chemical parks, through a challenge route, on a cluster-based plug-and-play model. It also proposed a scheme for container manufacturing to create a globally competitive ecosystem, with a budgetary allocation of Rs 10,000 crore over a five year period and a scheme for enhancement of construction and infrastructure equipment.
For the labour-intensive textile sector, it announced an integrated programme covering fibre self-reliance, cluster modernisation, handloom and handicraft support, sustainable textiles, and skilling under Samarth 2.0.
MSMEs
As for as the Micro, Small and Medium Enterprises, the budget announced revival of 200 legacy industrial clusters and Rs 10,000 crore Small and Medium Sized (SME) Growth Fund and plan to top up the Self-Reliant India Fund set up in 2021, with Rs 2000 crore to continue support to micro enterprises and maintain their access to risk capital and some more measures in the Trade Receivables Discounting System (TReDS), which will facilitate financing of trade receivables of MSMEs electronically.
Infrastructure
Public capital expenditure increased to Rs 12.2 lakh crore in 2026-2027 from Rs 11.2 lakh crore in the budget estimates for 2025-2026 and a proposal to set up an Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders. Asset monetisation will be accelerated through Real Estate Investment Trusts (REITs) for real estate assets of central public sector enterprises.
A new dedicated freight corridor connecting Dankuni in the East, to Surat in the west has been announced.
Financial Sector
A high level committee on banking will be set up to comprehensively review the sector and align with India’s next phase of growth. One of the major announcements is the proposal to restructure the Power Finance Corporation and Rural Electrification Corporation, the two major infrastructure financing companies.
The government will review the Foreign Exchange Management (non-debt instruments) Rules to create a more contemporary, user-friendly framework for
foreign investments, consistent with India’s evolving economic priorities. Besides, the budget also announced measures to strengthen the corporate bond markets and an incentive of Rs 100 crore for a single municipal bond issuance.
Service Sector
High-Powered ‘Education to Employment and Enterprise’ Standing Committee will be set up to recommend measures that focus on the service sector as a core driver of Viksit Bharat, aiming at 10 per cent global share by 2047.
Other Key Announcements
The budget proposed to indigenise manufacturing of seaplanes, through a viability gap funding scheme. It also announced a Rs 20,000 crore carbon capture and utilisation scheme for five years in sectors like steel. An allocation of Rs 5000 crore per city economic region over a period of 5 years for development of Tier II / III cities and temple towns has been set apart.
The government has accepted the recommendation of the 16th Finance Commission to retain the vertical share of devolution at 41 per cent and Rs 1.4 lakh crore provided to the states for FY 2026-2027 as Finance Commission Grants.
Tax Measures
Tax holiday has been announced till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity. The budget also proposed to club software development services, IT enabled services, knowledge process outsourcing services and contract R&D services relating to software development under a single category of Information Technology Services with a common safe harbour margin of 15.5 per cent applicable to all. The threshold for availing safe harbour for IT services is being enhanced substantially from Rs 300 crore to Rs 2000 crore and it shall be approved by an automated rule-driven process without any need for the tax officer to examine and accept the application.
To curb speculation in the futures and option segment of the equity market, the Securities Transaction Tax in the derivatives segment has been hiked.
The budget has granted basic customs duty exemption to capital goods used for manufacturing for battery energy storage systems and the existing basic customs duty exemption has been extended on imports of goods required for nuclear power projects till the year 2035, which is applicable for all nuclear plants irrespective of their capacity.
Basic customs duty exemption has been provided on components and parts required for the manufacture of civilian, training and other aircrafts.
Union Government Finances
The centre’s net tax receipts are estimated to be Rs 28.7 lakh crore in fiscal 2027, when compared to the revised estimates of Rs 26.7 lakh crore for fiscal 2026, a 7.2 per cent increase.
In the revised estimate for 2025-26, the fiscal deficit has been estimated at 4.4 per cent of Gross Domestic Product (GDP) and it is estimated to be 4.3 per cent of GDP in 2026-27.
To fund the fiscal deficit, the net market borrowings from dated securities are estimated at Rs 11.7 lakh crore, while gross borrowings are estimated at Rs 17.2 lakh crore.
In a challenging fiscal environment, the union government has preferred not to make any big bang announcements in the budget and instead opted to give assurance about continuation of reforms process and fiscal consolidation.
Poll-Bound States
The poll-bound states of Tamil Nadu and West Bengal found mention with some infrastructure projects being announced, including integrated east coast industrial corridor connecting Durgapur in West Bengal and high speed rail corridors like Hyderabad-Chennai and Chennai-Bengaluru.
The centre said it will back mineral-rich states of Odisha, Kerala, Andhra Pradesh and Tamil Nadu to establish dedicated rare earth corridors to promote mining, processing, research and manufacturing. However, there were no big-ticket announcements.
Responsibilities
Sitharaman said the budget focused on three kartavya- First one is to accelerate and sustain economic growth, by enhancing productivity and competitiveness and building resilience to volatile global dynamics.
Second is to fulfil aspirations of people and build their capacity, making them strong partners in India’s path to prosperity and third is to ensure that every family, community, region and sector has access to resources, amenities and opportunities for meaningful participation.
“This threefold approach requires a supportive ecosystem. The first requirement is to sustain the momentum of structural reforms – continuous, adaptive and forward-looking. Second, a robust and resilient financial sector is central to mobilising savings, allocating capital efficiently and managing risks. Third, cutting-edge technologies, including AI applications, can serve as force multipliers for better governance,” Sitharaman said.
Overall, the budget looked high on intent to build local manufacturing amid global challenges, while maintaining a fiscal consolidation path. The execution of the intent is the key.