India has pushed manufacturing to the forefront of its budget, prioritising sectors such as semiconductor, biopharma, electronic manufacturing and rare earth, while attempting a tight leash on spending in an external environment rendered hostile by Donald Trump’s tariffs and geopolitical conflicts.
Finance minister Nirmala Sitharaman, who presented her record-breaking ninth budget on Sunday, targeted the fiscal glide path, promising to keep key metrics such as fiscal deficit and debt-to-GDP under check while expanding capital expenditure by double digits.
While industry lauded the long-term vision of the budget, which allocated funds to many schemes that will play out over the next five years, an increase in the securities transaction tax on stock futures and options to curb speculation spooked the stock market. The benchmark BSE Sensex crashed by 1,546.84 points or 2 per cent, its worst performance on a budget day in six years.
The budget offered no major tax changes, with the government having reduced the burden on common people by cutting consumption tax (GST) and income tax in 2025.
But there were targeted cuts in import duties, especially for cancer drugs and items of personal use (electronic goods and accessories). Duties have been cut on key capital goods and inputs to make domestic manufacturing more competitive.
The budget assumed a nominal GDP growth (real GDP plus inflation) of 10 per cent for the next fiscal. India is likely to grow by 8 per cent in the 2025-26 financial year, aided by a real GDP growth of 7.4 per cent.
Prime Minister Narendra Modi described the budget as “futuristic” and as an “ambitious road map” for “Make In India” and “atmanirbhar Bharat” (self-reliant India), referring to the allocations to priority sectors.
“Our first kartavya (duty) is to accelerate and sustain economic growth, by enhancing productivity and competitiveness, and building resilience to volatile global dynamics,” Sitharaman said in her speech.
Buoyed by the success of Apple iPhone production, the budget has doubled the outlay for electronic manufacturing to ₹40,000 crore, while earmarking ₹10,000 crore for turning India into a biopharma manufacturing hub.
The budget has tried to spur the domestic manufacturing of chemicals, capital goods, rare earth and textiles, among others. It has offered a 20-year tax holiday to overseas firms providing data-centre services from India, helping companies such as Google and Microsoft.
Sitharaman has also unveiled a ₹10,000-crore SME Growth Fund to support small and medium industries.
The budget has proposed a committee on banking that will comprehensively review the sector and align it with India’s next phase of growth, indicating that the Centre may look to cut its stakes in nationalised banks.
To attract FDI, Sitharaman has proposed to review Foreign Exchange Management Rules.
“I think what we saw was a very tactical budget. It wasn’t a breakthrough kind of budget where groundbreaking kinds of measures were announced,” said Christian de Guzman, senior vice-president at Moody’s Ratings.
Balance sheet
The fiscal deficit — which tracks the shortfall between income and expenditure in a year – has been pegged at 4.4 per cent of the GDP for this fiscal and at 4.3 per cent for the next.
The debt-to-GDP — the ratio of the government’s cumulative debt to the GDP — set at 56.1 per cent for 2025-26 and 55.6 per cent for 2026-27, is likely to fall to around 50 per cent by 2030-31.
Capital expenditure — a sign of the government’s intent to spend on infrastructure — is expected to rise to ₹12.2 lakh crore in the next fiscal in keeping with the budget estimate (BE) for 2026-27, marking a projected 11.5 per cent rise over the revised estimate (RE) of ₹10.95 lakh crore for 2025-26.
The allocations for key subsidies — a major head of expenditure – are, however, headed for a cut. The government is projecting ₹4.54 lakh crore worth of subsidies, including those on food, fertilisers and LPG — down from the ₹4.69 lakh crore it is estimated to spend (RE) this fiscal.
The capital outlay for defence will increase by more than 20 per cent, underlining the importance of modernising the armed forces, as highlighted by Operation Sindoor.
A look at the government’s earnings reveals a strain on tax collections, with the collections of both direct and indirect tax projected to fall short of the last budget’s estimates.
Yet, Sitharaman has pencilled in an 11.7 per cent spike in income tax collections in 2026-27 while the earnings from the GST are expected to fall 2.6 per cent in the next fiscal.
The government’s net tax revenue is projected at ₹28.66 lakh crore, up from the ₹26.74 lakh crore in the RE for this fiscal.
Dinesh Kanabar, CEO and chairman of Dhruva Advisor, observed that the budget had turned out to be heavily tax-oriented, introducing nearly 90 amendments to the new Income tax Act ahead of its April 1 implementation.
The Centre hopes to garner ₹80,000 crore fromdisinvestment, documents show, up from the figureof ₹33,837 crore in the RE for this fiscal.
The dividend from the Reserve Bank of India and other banks is projected to rise to ₹316,000 crore, up from this fiscal’s BE of ₹256,000 crore and RE of ₹304,590 crore. The RBI had declared a dividend of ₹269,000 crore this year.