Budget 2026–27: Sustaining the Growth Momentum

Prof. (Dr.) Durgesh Rai

The Union Budget 2026–27 adopts a cautious yet confident approach, emphasising policy continuity, fiscal prudence, and investment-led growth. India’s macroeconomic fundamentals remain strong, with growth indicators robust and fiscal targets achieved with relative ease. As noted in the Economic Survey 2025–26, GDP growth for 2025–26 is estimated at 7.4 per cent, while growth for 2026–27 is projected at 6.8 to 7.2 per cent. Inflation has moderated sharply, averaging 1.7 per cent during April–December 2025, despite ongoing global economic uncertainty. Against this backdrop, the Budget 2026-27 seeks to sustain the current growth momentum while strengthening the foundations for medium- and long-term expansion.

The Philosophy

Economic reform under the present dispensation has been pursued more as a continuous and incremental process rather than through episodic interventions. Budget 2026–27 reflects this philosophy, serving as an opportunity to consolidate earlier reforms and extend the reform agenda in a calibrated manner. The emphasis is on maintaining macroeconomic stability while deploying targeted policy instruments to support growth.

A central pillar of the Budget is the consolidation and expansion of existing growth-enabling schemes. Among the six key areas identified to accelerate and sustain growth, scaling up manufacturing in strategic sectors occupies a prominent place. This approach builds on earlier initiatives aimed at strengthening domestic production capabilities and improving India’s integration into global value chains.

Technology, Manufacturing and Trade

The launch of India Semiconductor Mission (ISM) 2.0 marks a significant step in this direction. Building on ISM 1.0, the new mission focuses on developing domestic capacities in semiconductor equipment and materials, designing full-stack Indian intellectual property, and strengthening supply-chain resilience. It also envisages industry-led research and training centres to foster technological capability and develop a skilled workforce. Complementing this initiative, the outlay for the Electronics Components Manufacturing Scheme, introduced in April 2025, has been increased to ₹40,000 crore, signalling the government’s intent to scale up electronics manufacturing ecosystems in the country.

The Budget also advances India’s strategic minerals agenda. Taking forward the Scheme for Rare Earth Permanent Magnets launched in November 2025, it proposes targeted support for mineral-rich states—Odisha, Kerala, Andhra Pradesh, and Tamil Nadu—to establish dedicated Rare Earth Corridors. These corridors aim to promote integrated development across mining, processing, research, and manufacturing, thereby reducing import dependence and strengthening downstream industries.

Beyond high-technology manufacturing, the Budget outlines a broader set of interventions to sustain growth. These include rejuvenating legacy industrial sectors, creating “Champion MSMEs”, a renewed push for infrastructure development, measures to ensure long-term energy security and stability, and developing City Economic Regions to harness urban agglomeration economies.

The Budget also proposes introducing strong incentives to attract global business and investment to India. For instance, a tax holiday will be available until 2047 for any foreign company that provides cloud services to customers globally using data centre services in India. Also, to boost manufacturing in the country, the proposal is to provide a “5-year tax exemption to any non-resident who provides capital goods, equipment or tooling to any toll manufacturer in a bonded zone.”

Given their employment imperative, several labour-intensive sectors have received special emphasis. For instance, the Budget adopts a three-pronged strategy to support MSMEs through equity support, liquidity support, and professional support. Similarly, for the textile sector, an integrated programme will be launched comprising five components: the National Fibre Scheme to enhance self-reliance in natural, man-made, and new-age fibres; the Textile Expansion and Employment Scheme to modernise traditional clusters; a National Handloom and Handicraft programme to integrate and strengthen existing schemes and ensure targeted support for weavers and artisans; the Tex-Eco Initiative to promote globally competitive and sustainable textiles and apparel; and Samarth 2.0 to modernise and upgrade the textile skilling ecosystem through collaboration with industry and academic institutions.

On the international trade front, the focus is on reducing input costs, easing compliance, and improving logistics and trade facilitation to place India on the global manufacturing map and make it a major sourcing destination. For example, the Budget proposes to increase the limit for duty-free imports of specific inputs used in the processing of seafood from one per cent to three per cent of the previous year’s export turnover. Similar benefits have also been extended to other labour-intensive and export-oriented sectors, such as leather. Another important initiative is to extend the export period for final products from 6 months to 1 year for exporters of leather, textile garments and leather products.

Capital Expenditure: A Sustained Increase

Public capital expenditure remains a cornerstone of the growth strategy. The sustained increase in capital expenditure over recent years has helped address critical infrastructure gaps. Public capex allocation has increased to Rs. 12.2 lakh crores in 2026-27, up from Rs. 11.2 lakh crores in BE 2025-26. Given the substantial scope for further improvement, the continued emphasis on capital spending is both timely and necessary to improve the economy’s cost competitiveness. Besides creating productive assets, higher capital expenditure is vital to sustain demand in core sectors such as cement and steel, generating positive multiplier effects across the economy.

Infrastructure expansion is further reinforced by proposals to establish new Dedicated Freight Corridors connecting Dankuni in the East to Surat in the West; to operationalise 20 new National Waterways (NW) over the next five years. These efforts will be complemented by establishing training institutes to augment the required manpower and by developing a ship-repair ecosystem in Varanasi and Patna to serve the inland waterways. A Coastal Cargo Promotion Scheme will also be introduced to facilitate a modal shift from rail and road, and increase the share of inland waterways and coastal shipping from 6 per cent to 12 per cent by 2047, and reduce logistics costs, thereby improving cost competitiveness.

Agriculture: Enhancing Incomes and Productivity

In agriculture, the main objective remains the augmentation of farmers’ income. The emphasis is on diversification from traditional farm products to high-value agricultural products. The Budget proposes to support high-value crops across different regions of the country. They will be used for farming coconut, sandalwood, cocoa, and cashew in the coastal areas; agar trees in the North-East region; and nuts such as almonds, walnuts, and pine nuts in hilly parts of the country. Another important initiative is a proposal to launch Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources), a multilingual AI tool that will integrate the AgriStack portals and the ICAR package on agricultural practices with AI systems. This will help farmers make better decisions and enhance farm productivity.

Conclusion: Taxation and Fiscal Prudence

On the taxation front, the Budget adopts an incremental and reform-oriented approach. Following significant tax concessions in the previous year, the focus in 2026–27 shifts to simplifying procedures and improving the filing experience for individuals and businesses. Greater emphasis on process reforms reflects the government’s broader objective of enhancing compliance through simplification and efficiency rather than frequent changes in tax rates.

At the macro level, fiscal prudence remains a key feature of Budget 2026–27. The government continues to manage the fiscal deficit carefully, balancing growth-supportive expenditure with medium-term fiscal consolidation objectives. Overall, the Union Budget 2026–27 reinforces a strategy of sustaining growth through investment-led expansion, manufacturing competitiveness, and incremental reforms, while maintaining macroeconomic stability. The emphasis on continuity, capacity building, and infrastructure creation suggests a clear intent to anchor India’s growth momentum in structural strength rather than short-term stimulus.

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Dr Durgesh K. Rai is an Associate Professor at Rashtram School of Public Leadership, Rishihood University, Sonipat, Haryana, India. The views expressed here are personal.