The Union Budget announced today sends a clear signal: manufacturing remains central to India’s growth strategy. But this year’s document does something more subtle — and arguably more consequential. It marks a shift from isolated incentive schemes toward what might be described as industrial architecture: the deliberate construction of supply chains, skills pipelines, standards regimes, and input ecosystems that determine whether factories merely assemble products or capture durable value.
At a time when geopolitical tensions are reshaping trade flows, global firms are diversifying supply chains, and India has signed a growing number of free trade agreements, the government has sought to strengthen domestic industrial capacity while lowering frictions for exporters. The measures unveiled — spanning strategic sectors, customs reform, MSME finance, and infrastructure — suggest a maturing industrial policy. Whether this translates into sustained export growth will depend less on announcements and more on execution, coordination, and reform discipline.
From incentives to industrial architecture
The Budget 2026-27 squarely puts manufacturing at the centre of the growth strategy. The Budget’s emphasis on seven “strategic and frontier” manufacturing areas — semiconductors, electronics components, biopharma, rare earths, chemicals, capital goods, and textiles — is clearly not random. These are areas of high import dependence, strong employment or spillover potential, and rising geopolitical sensitivity. Manufacturing policy is increasingly being shaped by supply-chain insecurity, not merely domestic demand.
Crucially, the focus is shifting beyond final assembly. The next phase of the semiconductor mission explicitly targets equipment, materials, and intellectual property, signalling that value capture lies upstream. Similarly, rare-earth corridors seek to combine mining, processing, and manufacturing, reflecting an understanding that owning mid-stream capacity matters more than controlling raw ore alone.
This approach reflects a deeper question policymakers now seem willing to confront — not whether India should manufacture, but how deeply it wants to embed itself in global value chains and how much risk it is willing to absorb to do so.
Facilitating trade across borders
Alongside these sectoral bets, continued public capital expenditure on logistics corridors, ports, and industrial clusters addresses a chronic handicap of Indian manufacturing — high transport and transaction costs. Infrastructure may not deliver immediate export orders, but it quietly shapes competitiveness for decades by reducing turnaround times and enabling scale.
Trade facilitation is playing a similar role. Customs digitisation, trust-based clearance systems, longer validity for advance rulings, courier-export liberalisation, and flexibility for special economic zones during global disruptions together point to a shift from tariff-led protection to logistics-led competitiveness. AI-based scanning, bonded warehousing for components, toll-manufacturing exemptions and just-in-time frameworks for electronics may appear technical, but for exporters they can matter more than marginal duty cuts. Predictability often trumps incentives.
MSMEs, the backbone of India’s manufacturing ecosystem, also receive attention through credit facilitation, growth funds, and receivables-financing platforms. If effectively deployed, these could help smaller firms integrate into export supply chains rather than remain trapped in low-margin domestic subcontracting.
Taken together, these initiatives portray a government trying to build the scaffolding of a manufacturing economy — finance, logistics, standards, and inputs — rather than rely solely on fiscal carrots.
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Where the Budget does not deliver
Yet for all its strengths, the Budget is also notable for its caution. Industry had hoped for clearer signals on the future of production-linked incentive programmes as some flagship schemes approach their sunset years. Extending or redesigning such incentives for emerging areas — advanced materials, green manufacturing, batteries or electrolysers — could have strengthened investor confidence at a moment when multinational firms continue to weigh India against Southeast Asian alternatives.
GST simplification remains another unfinished agenda. Refund delays, classification disputes, and compliance burdens still erode exporter competitiveness. Progress here would likely yield returns larger than many targeted schemes.
The Budget is also restrained on politically difficult but economically crucial reforms relating to labour flexibility, land aggregation, and regulatory harmonisation across states — factors that determine whether factories can expand quickly when export opportunities arise.
Finally, the sheer breadth of manufacturing initiatives raises the risk of execution overload. Coordinating semiconductor fabs, rare-earth corridors, chemical parks, and textile clusters across multiple ministries and states will test administrative capacity. Without faster clearances and predictable environmental timelines, ambition could outstrip delivery.
Exports, FTAs, and the global backdrop
The Budget’s combination of duty rationalisation, sector-specific schemes, and logistics improvements is well aligned with India’s expanding FTA network and should help convert tariff preferences into actual export gains.
Lower customs duties on key inputs, correction of inversions, and expanded duty-free import limits for marine, leather, and textile exporters directly improve margin and pricing power in FTA markets. Upgraded electronics, semiconductor, chemical and container capacities will strengthen domestic value addition, helping firms meet rules of origin thresholds under FTAs and embed themselves deeper in global value chains.
The external environment adds uncertainty. Sluggish growth in advanced economies, rising protectionism and geopolitical tensions could weigh on demand regardless of domestic reforms. In such a setting, India’s manufacturing push must compete not just on cost, but on resilience and scale.
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A measured verdict
This Budget does not promise a manufacturing revolution overnight. What it offers instead is something more durable: continuity, systems-building, and a recognition that export competitiveness depends on supply chains, skills, infrastructure, and regulatory certainty as much as on incentives.
If complemented by deeper GST reform, labour-market flexibility, export-oriented skilling, and faster clearances, today’s announcements could help transform India’s FTAs into genuine engines of industrial expansion.
For now, the message to manufacturers is cautiously optimistic: the strategy is becoming more sophisticated, the intent unmistakable — but the real test will be whether execution keeps pace with ambition.
Shishir Priyadarshi is President, Chintan Research Foundation. Views are personal.
(Edited by Aamaan Alam Khan)