Capex as a flywheel-again
Public capex is set to rise to ₹12.2 trillion in FY27, extending the multi-year thrust from ₹2 trillion in FY15 to ₹11.2 trillion in FY26. The emphasis is on scalability in areas that matter more and have high- multiplier (seven high-speed rail corridors, Waterways, etc). This freight spine will compress logistics costs for the manufacturing sector.
Manufacturing’s second wind
Policy momentum moves beyond assembly toward the upstream stack. To illustrate, India Semiconductor Mission 2.0 encompasses ₹40,000 crore push to equipment, materials, and full-stack design. On similar lines, a rare-earth corridor spanning Odisha, Kerala, Tamil Nadu, and Andhra Pradesh are envisaged. These are critical sectors in the emerging energy chain and help reduce India’s dependence on imported supply chains. Recently, the government had cleared 22 new proposals under the Electronics Component Manufacturing Scheme (ECMS) involving ₹41,800 crore in investment, with projected production of ₹2.58 trillion and 33,791 direct jobs, marking the largest tranche of approvals under the scheme so far. A National Fibre Scheme, chemical parks on a plug-and-play model, and Mega Textile Parks aim to deepen value addition and export heft.
MSMEs, cities, and services spine
Budget leans into “champion MSMEs” via a top-up to the Self-Reliant India Fund and faster settlement platforms, while positioning cities as engines of growth, municipal finance, urban infra programs, and structured support for Tier-II/III nodes figure prominently. Measures include a scheme to revive 200 legacy industrial clusters through infrastructure and technology upgradation. Education-to-employment linkages (university townships near industrial/logistics corridors) target services dividend and employability.
Health, tourism, and green transitions as demand multipliers
From medical hubs to incentives for seaplane manufacturing, the Budget broadens demand creation beyond brick-and-mortar. A ship repair ecosystem catering to inland waterways will be set up in Varanasi and Patna, alongside a coastal cargo scheme to increase the share of coastal shipping and inland waterways in freight movement. Import duty relief on select medicines and ₹20,000 crore for Carbon Capture Utilisation and Storage program underscore a pragmatic glide path to decarbonisation that keeps industrial competitiveness intact.
Fiscal discipline as a competitive advantage
Despite the increase in capital outlays, the FY27 Budget preserves a steady and credible path toward fiscal consolidation. The fiscal deficit is targeted at 4.3 per cent of GDP, offering a mild fiscal boost given the slower pace of consolidation compared to recent years. Nominal GDP growth is projected at 10 per cent in FY27BE, while net tax revenues are expected to grow 7.2 per cent, a reasonably achievable assumption. Although gross borrowings are higher, the rise in net borrowings appears manageable. That said, actual borrowings will need careful monitoring through the year, particularly if inflows from alternative financing sources deviate from budgeted levels.
Equity markets — short term turbulence (STT) unlikely to waver long term confidence
For equity investors, while the STT (securities transaction tax) hike on F&O has dampened near-term sentiment, the Budget’s emphasis on balancing growth with fiscal discipline remains vital for medium- to long-term performance. The reinstatement of buybacks strengthens capital return flexibility. Overall, the Budget stays committed to long-term growth drivers-focused capex, infrastructure development, and prudent fiscal management. Stronger potential growth improves debt sustainability over time, supporting lower equity risk premiums. This policy steadiness reassures investors and reinforces confidence in India’s medium-term earnings outlook.”
The writer is MD, Kotak Mahindra AMC
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