Union Budget 2026-27 sharpens focus on manufacturing and MSMEs push

The 2026-27 Union Budget has been unveiled in the backdrop of enviable domestic growth-inflation dynamics amidst acute geopolitical uncertainty. The Budget did well to sharpen the focus on making the domestic economy more resilient, given the challenges posed by the external environment.

 

At the heart of the Budget is a sizeable push towards manufacturing, and micro, small, and medium enterprises (MSMEs) in a host of sectors, such as biopharma, hospitals and healthcare, hospitality, semiconductors, capital goods, infrastructure, data centres, the green economy, and the highly labour-intensive textiles and leather sectors.

 

Other recurrent themes are climate resilience and energy security to enable future readiness. For instance, expanding carbon capture, utilisation, and storage efforts in key industrial sectors, and prioritising rare earth development underscores India’s commitment to its climate objectives.

 

 

Further, the increase in the government’s capital expenditure is welcome, although it fell somewhat short of our anticipation. The market-making framework for corporate bond indices is positive for liquidity and the growth of bond markets.

 

With income tax and goods and services tax already rationalised over the last year, the expectation on the tax side had shifted to simplification and rationalisation. The plethora of tax changes is mostly welcome, including those related to Minimum Alternate Tax and Customs duty.

 

The basic Customs duty exemption on lithium ion cells to enhance the cost competitiveness of battery storage manufacturing is a big positive for energy security and would support India’s energy transition. The duty exemption for capital goods is expected to lower costs and accelerate critical mineral capacity build-up. Additionally, the exemption from basic Customs duty on imports of capital goods for nuclear power plants till 2035 would promote tariff competitiveness. Notably, the further increase in the securities transaction tax on futures and options trades is likely to raise the transaction cost and impact brokerage volumes, although the intent is likely to discourage speculative trades.

 

Overall, it is a very welcome and pragmatic Budget, with the focus clearly on making India viksit (developed) as early as possible.

 

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The writer is managing director and group CEO, Icra