Budget 2026 is poised to play a critical role in determining the future trajectory of India's manufacturing sector, which is currently experiencing a resurgence. The sector's growth is being propelled by government reforms, production-linked incentive (PLI) schemes, and shifts in global supply chains. As India aspires to become a global manufacturing hub, the upcoming budget will be crucial in addressing existing challenges and leveraging opportunities to achieve sustainable and inclusive growth.
India's manufacturing output has been expanding at around 6% annually, crossing $450 billion. The sector is estimated to grow by 7% in FY26, a notable increase from the 4.5% growth of the previous fiscal year. Nominal GDP, which accounts for inflation, is projected to grow by 8% in 2025-26. However, the manufacturing sector's share of GDP has stagnated at roughly 15–17%.
Several factors contribute to India's emergence as a manufacturing hub. These include a rising demand for supply chain diversification, a strong domestic consumption base fueled by a growing middle class, infrastructure expansion, and a skilled, young workforce. The government has also played a crucial role by implementing policies like the "Make in India" initiative and the PLI schemes. These schemes have attracted significant investments, particularly in sectors like electronics, medical devices, and automobiles. FDI in India's manufacturing sector has reached Rs. 14,45,781 crore (US$ 165.1 billion), a 69% increase over the past decade, driven by production-linked incentive (PLI) schemes.
Budget 2026 is expected to focus on infrastructure development, water conservation, and incentives for sustainable and energy-efficient manufacturing. Specifically, Budget 2026 could announce a second wave of schemes for semiconductors, lithium-ion battery ecosystem and automotive sector. Tax certainty and attractive tax rates would position India as Asia's most competitive manufacturing destination. A policy framework that integrates infrastructure investment with sustainability-led incentives can strengthen India's construction and manufacturing sectors while ensuring that public spending delivers long-term national value. To promote self-reliance in pharmaceuticals and medtech, Budget 2026 could include a PLI infusion of ₹10,000 crore for medical devices, covering oncology, imaging, and implants.
Despite the optimistic outlook, the Indian manufacturing sector faces several challenges. These include managing operational costs, enhancing shop floor productivity, improving supply chain resilience, ensuring IT-OT security, and upskilling the workforce. A critical challenge is the skills gap, with 80% of Indian employers reporting difficulties in finding skilled professionals in areas like robotics programming, data analytics, and industrial IoT maintenance. There's also the challenge of technology adoption, particularly for MSMEs, who need better access to finance, technology, and global markets.
Several key measures are anticipated in the budget to address these challenges. These include time-bound operationalization of the four Labour Codes, skilling initiatives focused on AI and digital manufacturing, credit enhancement for export-oriented and first-of-a-kind technologies, and initiatives to improve last-mile connectivity via road, rail, and multimodal logistics. The National Manufacturing Mission, announced in the Union Budget 2025-26, focuses on ease and cost of doing business, a future-ready workforce, vibrant MSMEs, access to technology, and quality manufacturing. Investors are seeking the reintroduction or extension of the 15% concessional corporate tax rate for new manufacturing units and simplification of compliance.
The Union Budget 2026 will be presented on February 1st by Finance Minister Nirmala Sitharaman. The budget is expected to outline the government's assessment of economic growth and public expenditure allocation. It will also detail revenue generation plans through taxes and non-tax sources, as well as the extent of borrowing required to cover the fiscal deficit. The manufacturing sector anticipates measures to further strengthen the manufacturing ecosystem, continued focus on infrastructure development, water conservation and incentives for sustainable manufacturing.
Budget 2026 will be a test of India's manufacturing comeback, requiring strategic policy interventions and effective resource allocation to unlock the sector's full potential. By addressing the challenges and capitalizing on the opportunities, India can solidify its position as a global manufacturing powerhouse and achieve its vision of becoming a developed economy.
