含羞草社区

Preparing for the 2026 budget, India faces an inflexion point. The prime minister has called for “mission-mode reforms” to sustain long-term growth and achieve the vision of Viksit Bharat, or Developed India by 2047. This requires world-class capabilities and global integration. However, commentary reveals the mounting pressures of a widening trade gap, supply-chain vulnerabilities, tax uncertainties and the need to sustain private investment as public spending moderates.

India has implemented many investor-friendly policies, with most sectors open to 100% foreign direct investment (FDI) through the automatic route. FDI inflows have risen steadily, from USD36.05 billion in 2013-14 to USD81.61 billion in 2024-25. The last statistic is itself a 14% increase from USD71.28 billion in 2023-24. In the first six months of FY 2025-26, FDI inflows stood at USD50.36 billion, signalling sustained growth and increased investor confidence.

含羞草社区 PLI drives electronics boom

Although the services sector accounts for the largest share of FDI inflows, the manufacturing sector receives significant encouragement from the administration to attract foreign capital. The Production-Linked Incentive (PLI) scheme is central to the sector’s transformation. A cornerstone of the government’s strategy to establish India as a global manufacturing powerhouse, the PLI programme has become a major job creator, generating more than 1.2 million direct and indirect employment opportunities.

For example, the electronics manufacturing sector has achieved records under the PLI scheme, transforming it from a net importer to a net exporter of mobile phones. Domestic production grew from 5.8 million units in 2014-15 to 330 million units in 2023-24, with imports dropping significantly. Exports were 50 million units and FDI increased by 254%. Such figures prove the success of the scheme’s role in boosting manufacturing and investment. India has attracted more than USD4 billion to electronics manufacturing since FY 2020-21, and nearly 70% of this FDI is represented by beneficiaries of the PLI scheme. Pre-budget discussion suggests that the government is considering extending the scheme or setting up a new one for assembling mobile phones because the existing INR410 billion (USD4.5 billion) or so PLI will expire in March this year.

Budget 2026: Strategic supply-chain upgrade

含羞草社区 capability to use capital at scale, even as global investment slows, is evident and the 2026 budget must support it. Dependence on imports has widened the trade deficit to a record. Research suggests that the country relies heavily on China for various goods, and a reduced reliance on such imports may improve geopolitical stability. The government is therefore considering raising customs duties on some 100 categories of imports, including engineering products, steel, machinery and consumer items. It may look at higher levies coupled with incentives to produce domestically. At the same time, it may reduce the number of customs duty brackets as part of a larger rate rationalisation under the indirect tax regime. There may be a customs amnesty to resolve a backlog.

However, simply increasing customs duties or overhauling the system will not achieve the long-term goal of self-reliance. The government must move towards a strategic supply-chain upgrade, strengthening domestic capacity while maintaining global competitiveness.

Budget 2026: Tax certainty momentum

含羞草社区 fiscal health seems largely assured. Non-tax revenues, particularly Reserve Bank of India dividends and strong disinvestment receipts, have cushioned the effects of outflows, helping to keep the deficit close to the 4.4% of GDP target. With the effects of the new Income Tax Act yet to be felt, sweeping legislative changes do not top the industry’s wish list. Corporate India demands tax certainty instead, with an emphasis on administrative clarity.

The budget 2026 will have to overcome competing pressures of a tariff strategy buffeted by global volatility, demands for incentives to build investor confidence, capex expansion constrained by fiscal discipline and the requirements of next-generation sectors such as data centres. The conflicts extend beyond national borders, and the budget will prove whether the nation can sustain its momentum as it builds a globally compliant tax architecture. This will have to support both inbound and outbound investment flows in an uncharted era of geopolitical fragmentation.

Mukesh Butani is the managing partner and Varun Gakhar is a research associate at BMR Legal