Finance Minister Nirmala Sitharaman unveils a growth-focused budget with major reforms in infrastructure, manufacturing, MSMEs and direct and indirect taxes
Finance Minister Nirmala Sitharaman on Saturday presented the Union Budget for FY26–27 with a strong emphasis on accelerating economic growth, driven by what she described as three key “kartavyas” and a fresh wave of reforms across manufacturing, infrastructure and taxation.
Sticking to the government’s fiscal consolidation roadmap, Sitharaman pegged the fiscal deficit for 2026–27 at 4.3 per cent of GDP. At the same time, public investment remains a cornerstone of the growth strategy, with capital expenditure raised to Rs 12.2 lakh crore for the coming financial year, up from Rs 11.2 lakh crore in the Budget Estimates for 2025–26. Gross market borrowings are estimated at Rs 17.2 lakh crore.
A major thrust of the Budget is on strengthening India’s manufacturing base. The Finance Minister announced the launch of Biopharma Shakti, a Rs 10,000 crore scheme spread over five years to help position India as a global biopharmaceutical hub. Support for electronics manufacturing has also been enhanced, with the allocation for the Electronics Components Manufacturing Scheme increased to ₹40,000 crore, up from its original outlay of Rs 22,919 crore when it was introduced in April 2025.
Micro, small and medium enterprises (MSMEs) received focused attention. A dedicated Rs 10,000 crore equity support fund will back so-called “Champion MSMEs”, while the Self-Reliant India Fund, set up in 2021, will get a Rs 2,000 crore top-up to ensure continued risk capital access for micro enterprises. To cut import dependence and build domestic capacity, the government will also roll out a ₹10,000 crore scheme over five years to develop a competitive container manufacturing ecosystem. In addition, 200 legacy industrial clusters across the country will be revived under a new scheme.
Infrastructure expansion featured prominently in the announcements. The government plans to develop seven high-speed rail corridors linking Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad–Chennai, Chennai–Bengaluru, Delhi–Varanasi and Varanasi–Siliguri, signalling a long-term push toward faster intercity connectivity.
Inland water transport will also see expansion, with 20 new National Waterways set to become operational over the next five years, beginning with National Waterway 5 in Odisha. To improve credit flow for large projects, an Infrastructure Risk Guarantee Fund will be established to provide partial credit guarantees to lenders. Urban development will be supported through the creation of City Economic Regions (CERs), each eligible for Rs 5,000 crore in funding through a challenge-based model.
On the taxation front, Sitharaman announced a sweeping structural reform with the Income Tax Act, 2025, set to come into force from April 1, 2026, replacing the six-decade-old 1961 law.
Capital markets will see higher levies, with the Securities Transaction Tax (STT) on futures increased to 0.05 per cent from 0.02 per cent. STT on options, both on premium and on exercise, has been raised to 0.15 per cent from the earlier 0.1 per cent and 0.125 per cent levels. The tax treatment of share buybacks has also been revised, with proceeds now to be taxed as capital gains in the hands of shareholders.
For companies opting into the new corporate tax regime, the Minimum Alternate Tax (MAT) will become a final tax at a reduced rate of 14 per cent, down from 15 per cent. However, the set-off of carried-forward MAT credit will be allowed only for those moving to the new regime. The Budget also proposes a one-time, six-month foreign asset disclosure window for small taxpayers with overseas holdings below specified thresholds.
In indirect taxes, customs duty on dutiable goods imported for personal use has been reduced from 20 per cent to 10 per cent. In a move aimed at easing the burden on patients, basic customs duty has been fully exempted on 17 cancer drugs and medicines used to treat seven rare diseases.
The aviation and defence sectors will benefit from customs duty exemptions on parts and components used in civilian aircraft manufacturing as well as maintenance, repair and overhaul (MRO) operations. Capital goods required for processing critical minerals in India will also attract basic customs duty exemptions.
In a significant push to position India as a global data infrastructure hub, the Finance Minister announced a tax holiday until 2047 for foreign companies providing cloud services to global clients using data centre infrastructure located in India. However, such firms will be required to serve Indian customers through an Indian reseller entity.
The Budget signals a strategy that combines fiscal discipline with targeted spending and structural reforms, as the government seeks to sustain growth momentum while deepening India’s manufacturing and infrastructure capabilities.
