Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 with a strong emphasis on bolstering India's manufacturing capabilities in the face of global economic uncertainties. The budget outlines a comprehensive strategy to enhance localization across key sectors, including electronic goods, pharmaceuticals, textiles, and capital goods, aiming to boost domestic production and improve export competitiveness.
Electronics Sector Receives Major Boost
The electronic goods sector emerged as a primary beneficiary, with the government increasing the outlay for the Electronics Components Manufacturing Scheme (ECMS) from approximately ₹23,000 crore to ₹40,000 crore. This significant hike is designed to build resilient supply chains and reduce dependency on imports, particularly from China. The ECMS, launched in April, targets domestic production of critical components such as printed circuit boards (PCBs) and camera modules, having already attracted proposals worth around ₹1.1 trillion.
PCBs represent a crucial sub-segment, with nearly 90% of India's current requirements being imported. The budget's focus is expected to benefit companies like Amber Enterprises India Ltd and Kaynes Technology India Ltd, whose stocks saw gains of 2-5% on the National Stock Exchange on February 1. However, the absence of an extension for mobile production-linked incentives (PLIs) led to a decline in shares of Dixon Technologies (India) Ltd, which fell over 2% after an intraday surge of more than 5%.
Semiconductor and Biologics Initiatives
Building on the success of the India Semiconductor Mission (ISM), the government introduced ISM 2.0 to advance equipment and materials production, develop full-stack Indian intellectual property (IP), and strengthen supply chains. Additionally, the budget proposed a five-year tax exemption for foreign companies supplying capital goods, equipment, and tooling to electronic goods manufacturers, alongside a ₹10,000-crore outlay to foster an ecosystem for biologics and biosimilars.
Biologics are advanced therapies derived from living organisms, while biosimilars offer cost-effective alternatives with similar efficacy. These treatments are gaining attention for their effectiveness in managing diseases like diabetes and cancer. The proposal includes creating over 1,000 clinical trial sites to boost research and development in this area.
Addressing Supply Chain Vulnerabilities
To mitigate vulnerabilities in critical supply chains, the finance minister announced exemptions from basic customs duty for capital goods used in processing critical minerals. Certain minerals will also be included in Schedule XII of the Income Tax Act, making exploration expenditures eligible for tax deductions. The capital goods sector received further support through the establishment of tool rooms for designing and testing high-precision components, along with a scheme to enhance manufacturing of construction and infrastructure equipment.
Textiles and MSME Support
For the textiles sector, a modernization scheme for traditional clusters with capital support for machinery and technology upgrades was proposed. An equity fund of ₹10,000 crore aims to boost the capabilities of micro, small, and medium enterprises (MSMEs). Additionally, a mandate for central public sector enterprises to settle MSME payments through the Trade Receivables Discounting System (TReDS) is expected to improve cash flows, with over ₹7 trillion already facilitated through this platform.
Professional support for MSMEs, including training 'corporate mitras' in tier-II and tier-III towns, will help address compliance challenges, a significant pain point for these businesses.
Global Context and Strategic Implications
The budget's focus on high-value manufacturing sectors such as semiconductors, electronics, chemicals, textiles, and rare earth magnets aligns with India's strategic interests in the global market. This emphasis is particularly relevant given the recently announced India-EU Free Trade Agreement, which offers preferential market access for over 99% of Indian exports by trade value in the EU market.
Delano Furtado, partner in the corporate practice at Trilegal, noted that these measures strengthen India's production base in sectors poised to benefit from international trade agreements. Overall, the Union Budget 2026-27 reinforces India's commitment to self-reliance and manufacturing growth, providing a cushion against global economic headwinds and positioning the country for enhanced competitiveness on the world stage.
