Finance minister (FM) Nirmala Sitharaman presented the Union Budget 2026-27, outlining a comprehensive strategy to strengthen India's manufacturing capabilities and technological self-reliance. The Budget allocates substantial funds across strategic sectors, with a particular emphasis on semiconductors, electronics, critical minerals and advanced manufacturing ecosystems.
Semiconductor Mission 2.0 Takes Centre Stage
Building on the foundation laid by India semiconductor mission (ISM) 1.0, which successfully expanded India's semiconductor sector capabilities, the government announced the launch of ISM 2.0 with an expanded mandate. The new phase aims to move beyond assembly and testing operations to encompass the entire semiconductor value chain. ISM 2.0 will focus on producing equipment and materials domestically, designing full-stack Indian intellectual property, and fortifying supply chains against global disruptions. The mission will also prioritise industry-led research and training centres to develop both cutting-edge technology and a skilled workforce capable of supporting India's semiconductor ambitions.
The semiconductor initiative represents a strategic shift from reliance on imports to domestic capability-building. By focusing on equipment manufacturing and materials production, the government aims to capture higher value-added segments of the semiconductor industry. The emphasis on indigenous intellectual property development signals India's intention to compete not just as a manufacturing destination but as an innovation hub in the global semiconductor landscape.
Electronics Sector Receives Major Funding Boost
The electronics components manufacturing scheme, launched in April 2025 with an initial outlay of ₹22,919 crore, has already attracted investment commitments at double the original target. Recognising this exceptional momentum, the FM announced a substantial increase in the scheme's allocation to ₹40,000 crore. This enhancement reflects the government's confidence in the sector's potential and its commitment to capitalising on India's growing attractiveness as an electronics manufacturing destination.
The expanded allocation will enable the scheme to accommodate additional investment proposals and support a broader range of electronic components. This move is expected to deepen value addition in the electronics sector and reduce India's dependence on imported components. The success of the initial phase demonstrates strong industry appetite for investing in India's electronics manufacturing ecosystem, particularly as global supply chains undergo reconfiguration.
To further strengthen the consumer electronics segment, the Budget also proposed exempting basic customs duty on specified parts used in the manufacture of microwave ovens. Such targeted measures aim to make Indian manufacturers more competitive by reducing input costs while encouraging domestic value addition.
Advanced Manufacturing for Energy Storage and Renewable Technologies
The Budget introduced specific measures to promote advanced manufacturing in emerging energy technologies, recognising their strategic importance for India's energy transition and industrial competitiveness. The FM announced an extension of the existing basic customs duty exemption on capital goods used for the manufacture of lithium-ion cells. This exemption, previously available only for battery applications, has now been expanded to cover capital goods used for manufacturing lithium-ion cells for battery energy storage systems (BESS).
BESS represent a critical technology for grid stability, renewable energy integration and energy security. As India accelerates its renewable energy deployment, the demand for large-scale energy storage solutions is expected to grow exponentially. By exempting capital goods from customs duty, the government aims to encourage domestic manufacturing of lithium-ion cells specifically designed for grid-scale and commercial energy storage applications. This policy intervention addresses the distinct technical requirements and scale of BESS applications compared to those of conventional batteries.
The initiative aligns with India's broader energy transition goals and creates opportunities for manufacturers to establish capabilities in a high-growth segment. Domestic BESS manufacturing capacity will reduce import dependence for critical energy infrastructure and position India as a potential manufacturing hub for energy storage technologies serving both domestic and export markets.
Complementing the energy storage focus, the Budget also introduced a customs duty exemption on sodium antimonate imported for use in the manufacture of solar glass. Solar glass forms a crucial component of photovoltaic modules, protecting solar cells while maximising light transmission. The quality and specifications of solar glass directly impact the efficiency and longevity of solar panels.
Currently, India imports significant quantities of specialised inputs for solar glass production. The exemption on sodium antimonate, a key raw material used in the manufacturing process, will reduce production costs for domestic solar glass manufacturers. This measure supports the development of a complete domestic solar manufacturing ecosystem, from raw materials to finished modules. As solar energy capacity expansion continues, domestically manufactured solar glass will strengthen supply chain resilience and reduce the solar power sector's vulnerability to import disruptions.
Rare Earth Corridors to Secure Strategic Supply Chains
In a significant move to address critical mineral security, the FM announced the establishment of dedicated rare earth corridors in mineral-rich states. The scheme for rare-earth permanent magnets, launched in November 2025, will now be complemented by comprehensive corridor development in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These corridors will promote integrated activities spanning mining, processing, research and manufacturing of rare earth elements.
Rare earth elements are crucial for numerous high-technology applications, including electric vehicles, renewable energy systems, defence equipment and consumer electronics. India's current dependence on imports for these critical materials poses strategic vulnerabilities. The establishment of dedicated corridors represents a systematic approach to developing domestic capabilities across the entire rare earth value chain, from extraction to finished products.
The corridor model offers several advantages, including economies of scale, integrated infrastructure development and concentrated research and development efforts. By focusing on states with proven mineral reserves, the government aims to create regional hubs of excellence that can support both domestic demand and export opportunities. This initiative aligns with the broader atmanirbharta (self-reliance) vision by reducing critical import dependencies.
Capital Goods Manufacturing Gets Strategic Attention
The Budget outlined a comprehensive approach to building India's capital goods capabilities, recognising that strong capital goods capacity determines productivity and quality across different sectors. The FM proposed establishing hi-tech tool rooms at two locations through central public sector enterprises (CPSEs). These facilities will function as digitally enabled, automated service bureaus capable of designing, testing, and manufacturing high-precision components at scale and at lower cost.
Additionally, a scheme to enhance construction and infrastructure equipment (CIE) will be introduced to strengthen domestic manufacturing of technologically advanced equipment. The scheme will cover a wide range of products, from lifts and fire-fighting equipment to sophisticated tunnel-boring machines required for metro construction and high-altitude road projects. This initiative addresses the current gap in the domestic availability of advanced construction equipment.
The Budget also announced a scheme for container manufacturing with a budgetary allocation of ₹10,000 crore over a five-year period. This initiative aims to create a globally competitive container manufacturing ecosystem that addresses India's dependence on imported containers for its growing logistics and trade sectors. Domestic container manufacturing capacity will support both international trade and the rapidly expanding domestic logistics industry.
Critical Minerals Policy Framework Strengthened
Beyond rare earths, the Budget addressed the broader critical minerals landscape through targeted policy measures. The FM proposed providing basic customs duty exemption on capital goods required for processing critical minerals in India. This incentive will encourage investment in mineral processing facilities and help India move up the value chain from raw material extraction to processed materials ready for industrial use.
The income tax act amendments also included provisions to incentivise prospecting and exploration of critical minerals. Certain critical minerals are being added to Schedule XII of the Act, making expenditure on prospecting and exploring these minerals eligible for tax deductions. This fiscal incentive aims to attract private sector investment in exploration activities, which typically involve high risks and long gestation periods.
Biopharma SHAKTI: Building India's Biotech Manufacturing Ecosystem
In a major policy initiative for the pharmaceutical and biotechnology sectors, the FM announced Biopharma SHAKTI (strategy for healthcare advancement through knowledge, technology and innovation) with an outlay of ₹10,000 crore over the next five years. This comprehensive programme responds to India's shifting disease burden towards non-communicable diseases such as diabetes, cancer and autoimmune disorders, where biologic medicines play an increasingly critical role in treatment outcomes and quality of life.
The primary objective of biopharma SHAKTI is to develop India as a global manufacturing hub for biopharma products, specifically focusing on biologics and biosimilars. Biologic medicines, derived from living organisms, represent the cutting edge of pharmaceutical science but require sophisticated manufacturing capabilities and stringent quality controls. India's established pharmaceutical manufacturing base provides a foundation, but biologics production demands significantly higher technological capabilities and infrastructure investments.
The strategy encompasses multiple components designed to build a complete ecosystem. A Biopharma-focused network will be established, including three new National Institute of Pharmaceutical Education and Research (NIPER) and upgrading seven existing NIPER institutions. This expansion addresses the critical need for specialised education and research capabilities in biological pharmaceuticals. The institutes will focus on developing expertise in areas such as cell culture technology, protein purification, formulation development and advanced analytical techniques specific to biologic products.
A particularly significant element of Biopharma SHAKTI involves creating a network of over 1,000 accredited Indian clinical trial sites. Clinical trials represent a crucial bottleneck in pharmaceutical development, and limited domestic capacity has historically constrained India's full participation in global drug development. The expanded clinical trials infrastructure will enable India to conduct large-scale studies for biologic medicines, accelerating both domestic drug development and India's participation in international pharmaceutical research.
The programme also addresses regulatory capacity, proposing to strengthen the central drugs standard control organisation (CDSCO) to meet global standards and approval timeframes. This enhancement will occur through the creation of a dedicated scientific review cadre and the deployment of specialists with expertise in biologic products. Strengthening regulatory capabilities serves dual purposes: ensuring patient safety through rigorous evaluation while enabling faster approvals for safe and effective medicines. Efficient regulatory processes are essential for attracting pharmaceutical investment and establishing India as a reliable source of quality biologic medicines for global markets.
Empowering MSMEs: Creating Champion Enterprises
The Budget proposes a three-part framework to help micro, small and medium enterprises (MSMEs) scale up by improving access to risk capital, liquidity, and compliance support. A ₹10,000 crore small and medium enterprise (SME) Growth Fund will provide equity financing to high-performing enterprises, addressing the shortage of growth capital and reducing reliance on debt. Incentives linked to performance metrics are intended to encourage productivity gains, technology adoption and quality improvement, with the aim of building export-capable mid-sized firms. The self-reliant India fund will be augmented by ₹2,000 crore to sustain early-stage equity support for microenterprises that face persistent barriers to formal finance.
To ease working capital constraints, the Budget expands the role of the trade receivables discounting system (TReDS) by mandating its use for central public sector enterprises (CPSEs) purchases from MSMEs, introducing credit guarantee support for invoice discounting through the credit guarantee fund trust for micro and small enterprises (CGTMSE), integrating the government e-marketplace (GeM) with TReDS to enable faster financing decisions, and allowing securitisation of TReDS receivables to improve liquidity.
In parallel, professional bodies such as the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and Institute of Cost Accountants of India (ICMAI) will develop modular training and tools to create ‘corporate mitras’ who can assist MSMEs with compliance at lower cost, particularly in smaller towns, reducing administrative burdens on enterprise management.
Rejuvenation of Legacy Industrial Clusters
The Budget proposes reviving 200 legacy industrial clusters across India to address ageing infrastructure, outdated technology and weakening competitiveness. These clusters, which concentrate sector-specific manufacturing activity, face shared infrastructure constraints despite offering agglomeration benefits. The initiative focuses on improving cost efficiency and productivity through upgrades to power, water, waste management, transport connectivity, and testing facilities. It also supports technology modernisation, including newer machinery, automation and digital systems, to raise output quality and align production with current market and regulatory standards.
Technology Integration and Future Outlook
The manufacturing and technology measures in Budget 2026–27 outline a coordinated strategy to strengthen India’s industrial base through targeted investments in advanced and strategic sectors. Allocations for semiconductors, electronics, rare earths, capital goods, energy storage and renewable technologies reflect an effort to build technologically capable manufacturing systems and reduce dependence on imports. By addressing multiple segments of the technology value chain, from critical minerals to high-end manufacturing, the Budget seeks to improve competitiveness and supply chain resilience.
These initiatives align with the Budget’s stated objective of sustaining economic growth through productivity gains and greater technological self-reliance. As global supply chains adjust and competition in strategic technologies intensifies, the focus on domestic manufacturing capacity aims to enhance economic security and position India in emerging industries. Outcomes will depend on execution, coordination between central and state governments, and private sector participation, with the announced financial support providing a base for longer-term industrial investment and expansion.
City Economic Regions and Urban-Led Growth
The Budget proposes the development of city economic regions to position cities as drivers of economic growth, with a renewed focus on Tier-II and Tier-III cities, including temple towns. The approach involves identifying region-specific growth drivers, such as manufacturing, services, or tourism, and designing customised development plans. An allocation of ₹5,000 crore per city economic region over five years has been proposed, with funding linked to a challenge-based, reform-cum-results framework to promote governance reforms and outcome-based implementation.
The framework treats cities as economic regions extending beyond administrative boundaries to include peri-urban and connected rural areas, enabling better management of agglomeration benefits and urbanisation pressures. Complementing this strategy, the Budget proposes seven high-speed rail corridors to improve inter-city connectivity and economic integration, supporting labour mobility, market access and knowledge spillovers across major urban centres.
