Union Budget 2026: Turning global disruption into India’s manufacturing advantage

Finance Minister Nirmala Sitharaman’s ninth consecutive Union Budget seeks to convert demographic strength, geopolitical shifts, and domestic capability into long-term national advantage. It continues the momentum for Manufacturing in India for the world, supporting the micro, small, and medium enterprises (MSMEs) in the country to scale up and dealing with the geoeconomics by sustaining growth, empowering citizens through capability building, and ensuring that development is broad-based and inclusive.

This year’s Budget arrives at a moment of global flux. Trade realignments, tariff uncertainties, and the reconfiguration of supply chains have reshaped the global economic landscape. As countries turn inward and protectionism resurfaces in the forms of export controls by various economic powers, India’s response is notably outward-looking. Rather than retreat, the Union Budget 2026-27 doubles down on manufacturing, exports, and competitiveness—reinforcing the idea of “Make in India for the World.” It reflects a belief that India’s growth story can be strengthened, not weakened, by global volatility, provided domestic foundations are robust.

Incentivising Manufacturing
Manufacturing emerges as the central pillar of this strategy. The government’s interventions are not scattershot incentives but part of a deliberate effort to scale production in strategic sectors, nurture globally competitive enterprises and develop economic regions with depth and resilience. The Biopharma Shakti initiative, backed by a Rs 10,000 crore outlay, signals India’s ambition to become a global biopharma hub, anchored in research, trials, and innovation.


That ambition finds a parallel in the India Semiconductor Mission 2.0. By focusing on industry-led research and development (R&D), specialised training, and a significantly enhanced outlay under the Electronics Component Manufacturing Scheme, the Budget recognises that technological sovereignty is no longer optional. In a world where chips power everything from defence systems to consumer devices, building domestic capabilities is as much a strategic necessity as an economic one.

These headline initiatives are complemented by quieter but equally important measures—high-tech tool rooms, container manufacturing, a National Fibre Scheme and the revival of 200 legacy industrial clusters. Together, they reflect a shift from episodic industrial policy to ecosystem building. The government’s bet is clear: scale, sustainability, and skill depth are the only viable responses to tariff-driven disruptions in key export markets.

Recognising energy security as a strategic imperative, the Budget extends duty exemptions and policy support to capital goods used in lithium-ion battery production, critical mineral processing and nuclear power projects. The creation of rare earth corridors and critical mineral facilities in mineral-rich states underscores a determination to reduce vulnerability to external shocks and geopolitical choke points. Support for emerging technologies such as carbon capture and storage further reinforces a pragmatic approach—one that balances development with climate responsibility.

MSMEs as India’s growth engine
If large industry provides scale, MSMEs provide momentum. The Budget rightly positions MSMEs as the backbone of employment and entrepreneurship. Measures such as the Rs 10,000 crore SME Growth Fund, continued backing of the Self-Reliant India Fund and mandatory onboarding on TReDS platforms aim to address long-standing constraints of credit access and delayed payments. But the real shift lies in enabling MSMEs to look beyond domestic markets. The removal of the Rs 10-lakh cap on courier exports and the technology-driven handling of returns marks a quiet but powerful reform—one that integrates small businesses, artisans, and start-ups into global e-commerce supply chains.

Infrastructure as the growth multiplier
Infrastructure, long acknowledged as India’s growth multiplier, receives renewed emphasis. Investments in inland waterways, high-speed corridors, and urban infrastructure are not merely about asset creation; they are about reducing logistics costs, improving competitiveness, and unlocking regional growth. In a global economy where efficiency determines market access, infrastructure is India’s most effective industrial policy.

A structural shift in customs tariff, procedure and trade policy
The most consequential structural shift, however, lies in customs and trade reform. In an era of evolving trade alliances, predictability matters as much as protection. By embedding effective duty rates directly into the tariff schedule and withdrawing outdated exemptions, the Budget moves towards transparency and simplicity. Targeted export promotion measures for labour-intensive sectors, such as seafood, footwear, leather and textiles, ease working capital pressures and reinforce India’s export competitiveness.

The one-time measure allowing SEZ manufacturing units to sell into the domestic tariff area at concessional rates is a symbol of the Budget’s pragmatism. It recognises that global disruptions have left capacity underutilised and that revival requires flexibility—without compromising the interests of domestic industry.

Equally important is the attempt to address the burden of legacy disputes. Prolonged litigation erodes trust, locks up capital, and deters investment. By offering a mechanism to close customs cases with the option to pay a charge in lieu of a penalty and extending the validity of advance rulings to five years, the Budget prioritises certainty over contention. This is reinforced by a broader transition towards a trust-based customs regime—longer duty deferral for compliant importers, reduced inspections, AI-enabled scanning, and a unified single-window system. Together, these reforms promise to change the texture of doing business at the border.

A forward-looking vision
Taken as a whole, the Budget presents a coherent, capex-led and reform-oriented vision. It seeks to expand manufacturing, reduce import dependence, strengthen exports and build resilience in an uncertain global order. More importantly, it attempts to align policy with purpose—linking infrastructure, industry, trade and technology into a single growth narrative.

The Budget endeavours to bring optimism to the manufacturers and exporters in a year filled with trade uncertainty and tariff volatility. While it succeeds in making sectors competitive and provide much-needed relief in some areas, the path to ‘Viksit Bharat’ lies in more reforms, such as rationalising GST credits, signing more bilateral agreements and further measures to incentivise manufacturing in the country.

The author is Partner and Indirect Tax Policy Leader, EY India. Views are personal