Pain inflicted by the US tariffs has been addressed, with measures including a one-time easing of access to the domestic tariff area, or the local Indian market, for Special Economic Zones (SEZs). Normally, SEZs export most of what they produce and face restrictions on selling within the country. Then there are duty tweaks on inputs and intermediates used by labour-intensive export sectors, such as textiles and leather.
There is also a continuing focus on job creation and skilling, especially in services sectors such as healthcare and tourism.
Capital flows
Amid concern over capital outflows, the Budget proposes hiking the overall investment limit for entities under the Persons Resident Outside India scheme (PROIs) to 24% from 10% of their paid-up capital, and the individual investment limit to 10% from 5%.
Sitharaman said persons outside India can participate in India’s growth story through listed equity under the Portfolio Investment Scheme. The tweaks to the PROI scheme are intended to enhance investment avenues for NRIs and other residents outside India. There will also be a comprehensive review of the Foreign Exchange Management Act (FEMA) to create a more contemporary user-friendly framework for foreign investors.
The Economic Survey 2025-26, presented on Thursday, had flagged the global capital strike and its adverse impact on the rupee’s stability, despite strong macroeconomic fundamentals. While an undervalued rupee helps offset the impact of higher US tariffs, investor reluctance to commit to India warrants examination, the Survey had said.
In the corporate bond market, a proposal to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices has been proposed.
Story continues below this ad
In another move to attract global investors, the FM has proposed to provide a tax holiday until 2047 to any foreign company that provides cloud services to customers globally from data centres in India.
Employment generation measures in the Budget
There is clear acknowledgement of the need to create jobs for the large number of youths entering the workforce every year. Focus areas include facilitating programmes to train care-givers, a big growth segment going forward, and setting up a committee to identify services sectors that can increase India’s share in global services exports to 10% by 2047.
Sitharaman also said skilling programmes for tourist guides would be conceived.
The emphasis on tourism, care services, bio-pharma, textiles, emerging technologies, shipbuilding, and new institutions is indicative of India’s growth ambitions being powered by the services sector. There appears to be a strong focus on demand-linked training and sector-specific skilling.
Continuing govt capex push
Story continues below this ad
The capital expenditure target for the next fiscal is up to Rs 12.22 lakh crore from the revised estimate of Rs 10.96 lakh crore for the current fiscal, marking a continuation of the Centre’s public investment ramp-up post the pandemic. This represents an 11.5% increase in capex. To put this in perspective, the Centre spent just Rs 3.08 lakh crore in 2018-19.
Seven more high-speed rail corridors have been proposed, to be developed as “growth connectors” in all four sides of the country. Alongside the road transport and highways sector, the Railways continues to be a primary driver of India’s infrastructure spending. The two sectors accounted for more than half of the Centre’s total capital expenditure last fiscal.
Industrial push
The Budget seeks to accelerate economic growth by enhancing productivity and competitiveness and building resilience amid volatile global dynamics in manufacturing sectors. This comes amid a general reluctance by the private sector to step up investments.
Measures include a scheme to revive 200 legacy industrial clusters through infrastructure and technology upgradation. A three-pronged approach to help MSMEs grow as “champions” has been proposed. Under this, there will be a Rs 10,000-crore SME growth fund for equity support, and the Self-Reliant India fund will be topped up by Rs 2,000 crore.
Story continues below this ad
There is a push for nuclear power generation, from the setting up of rare earth corridors in Andhra Pradesh, Odisha, Kerala, and Tamil Nadu to exemption of basic custom duty on critical minerals processing capital equipment.
Dedicated freight corridors and greater port connectivity for coal, iron ore, aluminum, and steel hubs like Talcher, Angur, and Kalinganagar have been proposed. There is also a push for AI-focussed data centres.
Export competitiveness amid multiple FTAs, lingering US tariffs
Aimed at curbing job losses in the SEZs, the Budget proposed “a special one-time” measure to facilitate sales by eligible SEZs to the Domestic Tariff Area at concessional rates of duty. This has been a demand by exporters after the 50% US tariffs rendered most Indian exports to its largest market uncompetitive since late August.
From custom duty cuts for inputs, especially involving labour-intensive sectors, focus on manufacturing in various clusters, to announcing capital support for modernising machinery in the textile sector, the Union Budget announcements have a strong focus on addressing the global trade volatility. Sitharaman has also announced a Rs 10,000-crore container manufacturing scheme amid their continued shortage and dependency on China.
Story continues below this ad
Alongside these measures, the FM proposed a sharp hike in the Securities Transaction Tax (STT) on futures trading and options premium and when they are exercised, to rein in unbridled speculative activity. This triggered a sharp market sell-off that sent the benchmark Sensex plunging more than 2,000 points at one stage just after the speech ended, although it partially recovered later.
Debt-GDP
In the first year of the finance ministry’s pivot to the debt-to-GDP ratio as its primary fiscal anchor, Sitharaman expects a slight improvement in its fiscal consolidation efforts in 2026-27, with some reductions in fiscal deficit and debt.
India’s debt-to-GDP ratio is pegged to fall to 55.6% in the next financial year from 56.1% in 2025-26 and fiscal deficit is seen falling to 4.3% of GDP in the 2026-27 financial year, down from 4.4% in 2025-26. The country’s nominal GDP is assumed to grow by 10% to Rs 393 lakh crore.
Sitharaman has also accepted the recommendations of the 16th Finance Commission – headed by former Niti Aayog Vice Chairman Arvind Panagariya – for the next five fiscal years ending in 2030-31. The Finance Commission makes key recommendations that govern how much money states get as a percentage of the Central government’s divisible pool of tax revenues. The 16th Finance Commission has chosen to retain the states’ share in the divisible pool at 41%.
