What Budget 2026–27 tells us about India’s growth strategy
Finance Minister Nirmala Sitharaman on Sunday announced a slew of measures to boost manufacturing, a tax holiday for global data centres, and incentives for the agriculture and tourism sectors as she unveiled a Rs.53.5 lakh crore Budget seen as a long-term blueprint for sustaining growth amid rising global risks. Sticking to fiscal discipline and shunning populist measures despite five key states, including West Bengal and Tamil Nadu, heading to polls soon, her Budget for the fiscal year beginning April, however, rattled stock markets, with a higher transaction tax on derivatives trading weighing on sentiment.
The Budget 2026-27 has simplified the customs regime by rationalising exemptions, waiving customs duty on 17 cancer drugs, while easing baggage rules and reducing duty to 10 percent on goods imported for personal use. Presenting her record 9th straight Budget, Sitharaman stepped up the government’s capital expenditure outlay to Rs.12.2 lakh crore from Rs.11.2 lakh crore last year, underscoring its focus on infrastructure-led growth amid global uncertainty.
The government will prioritise scaling up manufacturing across seven sectors — pharmaceuticals, semiconductors, rare-earth magnets, chemicals, capital goods, textiles, and sports goods, she said. Also, the emphasis will be on job creation and technology-driven development. A series of initiatives were also announced for the livestock, fisheries, and high-value agriculture sectors, while a Rs.10,000 crore investment has been proposed over the next five years to develop India as a biopharma manufacturing hub. An integrated programme for the textile sector was also announced.
For tourism, the development of ecologically sustainable mountain trails in Himachal Pradesh, Uttarakhand, and Jammu and Kashmir, as well as the development of 15 archaeological sites, was also proposed. Support for small businesses includes a dedicated Rs.10,000 crore SME Growth Fund to create future Champions, incentivising enterprises based on select criteria.
The measures announced in the Lok Sabha complement last year’s sweeping income tax and GST cuts, which, together with spending on infrastructure, labour law overhaul, and the RBI’s interest rate reductions, have so far helped the Indian economy withstand the punitive 50 percent tariff US President Donald Trump has imposed on Indian goods.
The FY27 Budget comes against a complex backdrop. While domestic demand has held up and inflation has moderated from recent highs, global uncertainties – including geopolitical tensions, volatile commodity prices, and uneven monetary easing by major central banks – continue to cloud the outlook. At home, the government faces pressure to boost consumption, accelerate job creation, and step up capital spending, while keeping the fiscal deficit on a downward path.
“Today, we face an external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted. New technologies are transforming production systems while sharply increasing demands on water, energy, and critical minerals,” Sitharaman said while presenting the Budget in the Lok Sabha.
India, she said, will continue to take confident steps towards Viksit Bharat, balancing ambition with inclusion. “As a growing economy with expanding trade and capital needs, India must also remain deeply integrated with global markets, exporting more and attracting stable long-term investment.”
And to do that, the government will also continue to prioritise fiscal consolidation, targeting a reduction in the debt-to-GDP ratio to 55.6 percent in the next financial year from 56.1 percent, and the fiscal deficit to 4.3 percent from 4.4 percent in the current year. It plans to borrow Rs.17.2 lakh crore from bond markets, where yields have firmed amid elevated government borrowing.
While there were no major changes to personal income-tax slabs, the government announced tax and incentive measures aimed at boosting investment and ease of compliance for industry. A biopharma manufacturing hub with an outlay of Rs.10,000 crore, the second edition of the semiconductor mission, a Rs.40,000 crore outlay for electronics component manufacturing, establishing rare earth corridors in mineral-rich states, setting up three dedicated chemical parks, and strengthening capital goods capability were among the measures announced.
Among the major announcements were a 20-year tax holiday to overseas firms that provide global data centre services from the country, as New Delhi steps up efforts to woo investors in its fast-growing digital infrastructure sector. The government also proposed a 15 percent safe harbour on costs for data centre services provided by a related entity of a foreign cloud firm. The move is expected to benefit overseas cloud companies structuring their India operations through group entities by providing greater tax certainty and improving operational efficiency.
The announcement comes as India sees some of the world’s largest data centre investments, led by cloud majors such as Google, Microsoft, and Amazon Web Services, which together have committed around USD 40 billion in 2025 alone. Alongside, Securities Transaction Tax (STT) has hiked on futures trading to 0.05 percent from 0.02 percent and to 0.15 percent from 0.01 percent on options.
Also, tax on buyback for all types of shareholders will be taxed as capital gains.
Other measures include TCS on the sale of overseas tour packages slashed to 2 percent, while the same on overseas education, and medical expenses under LRS (Liberalised Remittance Scheme) cut to 2 percent.
For the infra push, a new Dedicated Freight Corridor will be set up connecting Dankuni in the East to Surat in the West. Besides, 20 new National Waterways (NW) will be operationalised over the next five years, a Coastal Cargo Promotion Scheme will be launched, and incentives will be provided to indigenise the manufacturing of seaplanes. For clean energy, an outlay of Rs.20,000 crore over the next five years was announced for Carbon Capture Utilization and Storage (CCUS) technologies. The government will develop seven high-speed rail corridors between cities as ‘growth connectors’ to promote environmentally sustainable passenger systems.
Tax measures include tax exemption on interest awarded by the Motor Accident Claims Tribunal to a natural person, rationalising of penalty and prosecution provisions, exemption from Minimum Alternate Tax (MAT) to all non-residents who pay tax on presumptive basis, and TCS rate for sellers of specific goods namely liquor, scrap and minerals will be rationalised to 2 percent and that on tendu leaves will be reduced from 5 percent to 2 percent.
The basic customs duty exemption given to capital goods used for manufacturing Lithium-Ion Cells for batteries has been extended, as has been the same on the import of goods required for Nuclear Power Projects. Duty-free personal import of drugs/ medicines and food for 7 more rare diseases has been allowed. To address practical issues of small taxpayers like students, young professionals, tech employees, and relocated NRIs, she proposed to introduce a one-time 6-month foreign asset disclosure scheme.
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