India's Budget 2026, presented against a backdrop of global geopolitical tensions, demonstrates a clear strategic alignment with national security and economic resilience. Finance Minister Nirmala Sitharaman's budget on Sunday, February 1, 2026, emphasized strategic priorities, particularly in the semiconductor industry and defense, aiming to fortify India against global disturbances.
A significant push was given to the semiconductor industry with the launch of India Semiconductor Mission (ISM) 2.0, backed by an allocation of ₹1,000 crore for FY 2026-27. Building upon the progress of ISM 1.0, the new phase will focus on producing semiconductor equipment and materials, designing full-stack Indian intellectual property, and strengthening supply chains. The initiative also emphasizes industry-led research and training centers to cultivate advanced technologies and a skilled workforce. Complementing this, the outlay for the Electronics Components Manufacturing Scheme (ECMS) has been increased to ₹40,000 crore, capitalizing on strong investor interest in electronics manufacturing. This focus on domestic manufacturing is viewed as a strategic step to reduce import dependence and generate employment.
In light of current security concerns, especially with China and Pakistan, the budget provides a substantial boost to the defence sector. The overall defence budget has risen to approximately ₹7.85 lakh crore, a nearly 15% increase from the previous year's ₹6.81 lakh crore. Capital expenditure for defence has also seen a rise, estimated at around ₹2.31 lakh crore compared to ₹1.80 lakh crore last year, signaling a sharper focus on advanced weapon systems and domestic defence production. This increased allocation will cater to the modernization of the Armed Forces and address financial requirements arising from emergency procurements. The Ministry of Defence has received an unprecedented allocation, amounting to 2% of the estimated GDP for the next financial year.
The budget also includes measures aimed at boosting India's AI and digital capabilities. Long-term tax holidays have been announced for foreign companies establishing data centers and cloud facilities in India. A safe harbor regime for data and cloud service providers is expected to reduce regulatory friction and enhance operational certainty for firms serving global clients.
Furthermore, the Union Budget 2026 aims to strike a balance between fiscal consolidation and growth. The government expects the economy to grow around 7 percent in the coming year while keeping the fiscal deficit at 4.3 percent. The budget continues the government's emphasis on infrastructure development, with new dedicated freight corridors, national waterways, and coastal cargo promotion schemes. These initiatives are expected to enhance connectivity and reduce logistics costs, thereby boosting economic activity.