Union Budget 2026 Unveils Comprehensive Manufacturing Push
India's decade-long journey to fortify its manufacturing base has reached a pivotal moment with the Union Budget 2026, which positions manufacturing as a strategic frontier for sustained economic growth. This budget builds upon foundational reforms like the Make in India initiative launched in 2014 and the Labour Codes implemented in November 2025, which streamlined 29 central laws to modernize workforce frameworks.
Key Fiscal Incentives and Sectoral Allocations
The budget proposes a significant expansion of the Electronics Components Manufacturing Scheme, increasing its allocation to ₹40,000 crore to boost domestic value addition in global supply chains. Complementing this, a five-year income tax holiday is introduced for non-residents supplying capital goods to contract manufacturers in customs-bonded zones, aimed at reducing costs for specialized equipment. Additionally, safe harbour provisions extend to non-residents for component warehousing, with a profit margin capped at 2% of invoice value and a tax incidence of 0.7%, enhancing just-in-time logistics efficiency.
Advanced Manufacturing and Global Competitiveness
A major highlight is the India Semiconductor Mission (ISM) 2.0, focused on producing equipment, developing full-stack Indian intellectual property, and strengthening supply chains to build a robust domestic semiconductor ecosystem. In aviation, basic customs duty exemptions on parts for aircraft manufacturing and raw materials for defence maintenance, repair, and overhaul (MRO) activities support indigenization, alongside a seaplane VGF scheme to promote operations and manufacturing.
Support for Emerging and Traditional Sectors
The budget introduces Biopharma SHAKTI, a five-year ₹10,000 crore program to establish India as a global hub for biopharma manufacturing by enhancing capabilities in biologics and biosimilars. For rare earths, the Scheme for Rare Earth Permanent Magnets is bolstered by proposed Rare Earth Corridors across mineral-rich states to foster mining, processing, and manufacturing. Chemical parks receive state support to expand domestic production, while the capital goods sector benefits from Hi-Tech Tool Rooms and a ₹10,000 crore allocation over five years for container manufacturing to reduce import dependence.
Labour-Intensive Industries and Legacy Clusters
Beyond advanced sectors, the budget extends support to labour-intensive industries like textiles and aims to develop India into a global centre for affordable sports goods. A scheme to revive 200 legacy industrial clusters through infrastructure and technology upgrades is proposed to improve cost competitiveness and efficiency.
Tax Reforms and Customs Duty Exemptions
Impetus to manufacturing is further provided through tax measures, including basic customs duty exemptions across emerging sectors such as lithium-ion cell battery storage systems, critical mineral processing equipment, and raw materials for wind turbines and nuclear power plants.
Conclusion: A Holistic Growth Strategy
In essence, Union Budget 2026 represents a holistic manufacturing-led growth strategy that marries structural reforms with targeted fiscal incentives. By embracing both advanced and traditional industries and prioritizing exports and global competitiveness, this budget has the potential to deepen India's industrial capabilities and strengthen its position in global value chains. Effective execution and collaboration could mark a transformative chapter in the nation's industrial journey.
