Budget for Industry: Control and Command

 The one term that really defines Budget 2026-27 is ‘shoe uppers’. Any major economic statement from the government should surely not go into such micro details on taxes and procedures, and the selective picking of industries and items rather than a holistic boost for private industry in the Budget is emblematic of the continuing control mindset of policymakers.

The Budget stretches a line between such specific product tweaks, including parts for microwaves and walnuts, to a visionary but nebulous future marked by high-speed rail lines, rare earth independence, and data centre dominance. Arbitrary targets are outlined for cities, tourism centres, healthcare workers and girls’ hostels without significant outlay enhancement. Given the long-term initiatives proposed, it is likely that the Budget was truly underpinned by a yuva-shakti thinking of future imperatives rather than the present woes of job-seekers, small enterprises, investors and exporters.

With barely a passing nod to global economic turbulence, the Budget does well to maintain a high degree of stability and prudent macroeconomic steering which aims to insulate industry from the vagaries of external powers. Staying on the fiscal deficit pathway and not resorting to populist measures for upcoming elections may be the highlight of this pedestrian Budget that seeks to avoid excitement but misses an opportunity for announcing impactful reform policies.

Looking at the Budget’s manufacturing highlights, eleven areas have been prioritised. Of these, the vaunted India Semiconductor Mission 2.0 receives an outlay of ₹10 billion for 2026-27. The scheme to revive 200 legacy industrial clusters is not specifically mentioned in the scheme outlay document and the National Industrial Corridor Development and Implementation Trust is allocated ₹30 billion, unchanged from the revised estimates of the previous year.

While three dedicated chemical parks are announced, it is worth remembering that the earlier petrochemical and chemical parks did not really take off as expected. The stress on container manufacturing is welcome since China has a stranglehold on this critical product, but questions arise on whether India can be a credible alternative. The plan is to produce 1 million TEUs over the next decade by leveraging ₹100 billion in the next five years, reducing imports of 2 million imported empty containers.

The Electronics Component Manufacturing Scheme, notified in April 2025, garnered much higher investments than envisaged and its enhancement to ₹400 billion builds on the new proposals approved under the third tranche. It is puzzling that the expenditure planned for the year stands at just ₹10 billion, and possibly much of the incentives outgo will come on line over the next few years. The textile sector has been imparted a boost through various schemes such as National Fibre Scheme, skill development under Samarth 2.0 and support to handlooms. This is timely and will help to prepare for the opening of the large EU market once the India-EU free trade agreement is inked.

The rare earth corridors build upon the National Critical Mineral Mission and the Rare Earth Permanent Magnet scheme to incorporate processing into the value chain. This requires the development of a number of ancillary industries as well as skills but it is a good beginning to lower India’s reliance on imports over the long term. It is also interesting to note the Scheme for Enhancement of Construction and Infrastructure Equipment, which includes tunnel-boring machines. China had discouraged exports of these machines to India at a time of heightened strain in the bilateral relationship, and a proposal to build domestic capacities in such equipment is a nose-thumb at China, even though it may take years to develop the supply chain.

The policies announced for strengthening MSME competitiveness are rather vague and limited in scope, apart from the credit guarantee for discounted invoices on the trade receivables platform. Announcements on funds and industrial clusters have regularly been made in the past without transformational impact for MSMEs, and are at best a measure to fill growing policy and funding gaps rather than offer impetus.

It is questionable how much of a thrust the proposals on exemption of basic customs duty on specified parts for microwave ovens, aircrafs and parts, shoe uppers and specific inputs for processed seafood products for export will impart to overall manufacturing. These tweaks do not represent a support system for exporters and their workers, besieged by falling orders and rising tariffs in the key US market. The steps for Authorised Economic Operators and risk management system are also unlikely to sufficiently reduce cost of exporting to offset other costs in an uncertain world.

As for most government announcements, the success of many of these initiatives will rest upon effective implementation, spotty at best.

In larger macroeconomic terms, apart from enhanced public capex, the Budget offers little for driving consumption, boosting private capex, creating jobs, and stabilising exports for a new world. It is not a Budget addressing global volatility or domestic growth drivers, but focuses on a business-as-usual approach, earnestly hoping that negative geopolitical forces and domestic developments will resolve themselves over the coming year.    

*Views are personal