India Boosts Manufacturing and Infrastructure Spending in Union Budget 2026-27

Key takeaways

• Indian Finance Minister Nirmala Sitharaman presented the Union Budget for Financial Year (FY) 2026–27, on February 1, announcing record infrastructure spending and new measures to support manufacturing and other strategic sectors.

• The economy is expected to close the current fiscal year at 7.4% growth, according to the annual Economic Survey, released on January 30, but economic expansion is forecast to slow slightly next year, to between 6.8-7.2%, though a U.S.-India trade deal could rewrite those estimates.

• The budget balances fiscal consolidation and new spending. The budget deficit is forecast to fall to 4.3% of GDP next year from an estimated 4.4% in the current fiscal year. Similarly, the debt-to-GDP ratio is projected to decline to 55.6%, from 56.1%. Anticipated inflation of 4% would fall comfortably within the Reserve Bank of India’s 2-6% target range.

• The budget includes no new tax cuts or changes to effective tax rates, but confirms the rollout of the Income Tax Act, 2025, effective April 1, 2026, to ease compliance burdens.

• Capital expenditure for roads, ports, and high-speed railways will increase 9% to a record USD 133.1 billion. Capital expenditure on defense will increase by 18%.

• Sector-specific highlights include a new USD 1.1 billion biopharma manufacturing initiative; the introduction of seven high-speed rail corridors and 20 new national waterways; a USD 1.1 billion dedicated small and medium enterprises growth fund; significant new spending for carbon capture and lithium-ion battery manufacturing; and full duty exemptions on the import of 17 cancer drugs and other lifesaving medications.

• The budget also maintains a strong focus on AI initiatives, including a tax holiday for new data centers through 2047 and the launch of the India Semiconductor Mission 2.0 (ISM 2.0), to boost exports and reduce dependencies.

• Companies that seek to expand local manufacturing and jobs, integrate their India production into export-oriented supply chains, support infrastructure development, and invest in strategic sectors and technologies will be best positioned to benefit from regulatory facilitation, incentives, and stronger government support and cooperation.