Manufacturing Emerges as Budget 2026-27’s Big Economic Bet

As the global economy continues to navigate uncertainty and uneven industrial growth, India’s manufacturing story is beginning to stand out. While global manufacturing output expanded by just 0.7% in the third quarter of calendar year 2025, India clocked a stronger 1.3% growth during the same period. It is a small but powerful signal — India’s industrial engine is not just running, it is gaining speed.

The Union Budget FY 2026-27 builds firmly on this momentum. With a clear push toward scaling manufacturing across strategic and frontier sectors, the government has placed industry at the center of India’s long-term economic transformation — one that aims to power the country toward its ambitious $35 trillion economy vision by 2047.

Manufacturing Momentum: The Numbers Tell the Story

India’s industrial activity has strengthened significantly in FY 2025-26. Real Industry Gross Value Added (GVA) grew 7% year-on-year in the first half of the fiscal. By December 2025, industrial production surged 7.8% — the strongest expansion in over two years — following a robust 7.2% growth in November.

Manufacturing led this surge, registering 8.1% growth in December 2025 alone. Some segments delivered remarkable expansion:

• Computer and electronic products: 34.9% growth

• Motor vehicles and trailers: 33.5% growth

• Other transport equipment: 25.1% growth

Quarterly data further reinforces this trend. Manufacturing GVA grew 7.72% in Q1 and accelerated to 9.13% in Q2 of FY 2025-26. This improvement reflects a shift toward higher-value production, stronger infrastructure, wider adoption of technology, and increasing formalisation.

Business Confidence on the Rise

Forward-looking indicators also paint an optimistic picture.

The manufacturing Purchasing Managers’ Index (PMI) has remained well above the 50-mark expansion threshold since March 2023. In January 2026, PMI stood at 55.4 — higher than its long-run average — indicating sustained improvement in sectoral health.

According to the RBI’s Industrial Outlook Survey:

• Business assessment improved in Q2 FY26 compared to Q1.

• Cost pressures from raw materials, financing, and wages are expected to ease.

• Demand is expected to strengthen in Q4 FY26 and Q1 FY27.

Manufacturers are anticipating better price realisation and stable business sentiment in the coming quarters — a strong sign for sustained growth.

Core Industries: The Backbone of Expansion

The growth story is not limited to high-tech sectors. Core industries continue to provide foundational strength.

The Index of Eight Core Industries (ICI) stood at 175.7 in December 2025, registering 3.7% growth year-on-year. Cement, steel, electricity, fertilizer, and coal all posted positive production growth.

Key highlights include:

• Cement production rose from 270 million tonnes in FY15 to 453 million tonnes in FY25.

• Finished steel output grew from 81.86 million tonnes in FY15 to 146.69 million tonnes in FY25.

• Coal production reached a historic 1,047.52 million tonnes in FY25, up nearly 5% from the previous year.

India is now the world’s second-largest producer of cement and crude steel — strengthening its infrastructure backbone.

Moving Up the Value Chain

The Economic Survey 2025-26 notes that medium- and high-technology industries now contribute 46.3% of India’s manufacturing value added. This shift toward sophisticated production places India among a select group of middle-income economies advancing up the global value chain.

India’s ranking in the Competitive Industrial Performance (CIP) index improved to 37th in 2023 from 40th in 2022 — a steady climb.

Exports are also reinforcing this strength. In FY26, each of the first three quarters recorded the highest-ever export levels. Between April and December 2025, exports touched USD 634.3 billion — marking 4.3% year-on-year growth.

MSMEs: The Silent Powerhouses

No manufacturing story in India is complete without MSMEs.

Micro, Small and Medium Enterprises contribute:

• 35.4% of manufacturing output

• 48.58% of exports

• 31.1% of GDP

They employ over 32.82 crore people across 7.47 crore enterprises, making them India’s second-largest employer after agriculture.

Recognising their role, the Union Budget 2026-27 proposes:

• A ₹10,000 crore SME Growth Fund to support high-potential enterprises.

• A ₹2,000 crore top-up to the Self-Reliant India Fund to provide risk capital to micro enterprises.

The focus is clear — build “champion SMEs” that can integrate into global supply chains.

Budget 2026-27: Strategic Push Across Frontier Sectors

The Union Budget 2026-27 lays out targeted measures across seven strategic and frontier sectors to scale manufacturing capacity.

Major Initiatives Announced:

• Rejuvenation of 200 legacy industrial clusters through infrastructure and technology upgrades.

• Biopharma SHAKTI with ₹10,000 crore outlay over five years to position India as a global hub for biologics and biosimilars.

• Semiconductor Mission 2.0 focusing on equipment manufacturing, supply chain fortification, and full-stack Indian IP development.

• Dedicated chemical parks under a plug-and-play model.

• Electronics Components Manufacturing Scheme (ECMS) outlay increased to ₹40,000 crore.

• Rare earth corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu.

• ₹10,000 crore allocation for container manufacturing over five years.

• Construction & Infrastructure Equipment (CIE) scheme.

• Mega textile parks and integrated textile programmes.

• Mahatma Gandhi Gram Swaraj initiative to strengthen khadi, handloom, and handicrafts.

These are not standalone schemes. Together, they represent a coordinated ecosystem approach — from raw material sourcing to final export competitiveness.

Customs and Tax Reforms: Making Manufacturing Competitive

To support this sectoral push, the Budget also introduces customs and tax reforms designed to ease operations and promote exports.

Key measures include:

• Basic Customs Duty exemption on inputs for products ranging from seafood and footwear to microwave ovens and aircraft manufacturing.

• Five-year income tax exemption for non-residents supplying capital goods to toll manufacturers in bonded zones.

• Deferred duty payment window for trusted manufacturers.

• Extension of export timelines for leather and textile sectors.

• Special one-time measure allowing eligible SEZ units to sell in domestic tariff areas at concessional duty.

These steps aim to reduce friction, cut costs, and integrate India more deeply into global value chains.

PLI Scheme and National Manufacturing Mission

The Production Linked Incentive (PLI) scheme continues to act as a catalyst.

• Smartphone manufacturing has scaled significantly.

• PLI pharmaceutical sales crossed ₹2.63 lakh crore in three years, including ₹1.69 lakh crore exports.

• The automobile PLI scheme has attracted ₹35,657 crore investments and created nearly 49,000 jobs.

Meanwhile, the National Mission on Manufacturing (announced in Budget 2025-26) targets:

• Manufacturing share of GDP at 25% by 2035.

• Creation of 143 million jobs.

• Merchandise exports of USD 1.2 trillion.

Investment and Innovation: The Twin Engines

Investment momentum remains strong.

Gross Fixed Capital Formation stands at 30% of GDP and expanded 7.6% in H1 FY26. Government capital expenditure rose from ₹3.07 lakh crore in FY19 to ₹11.21 lakh crore in FY26. Private investment announcements in H1 FY26 surged to ₹14.6 lakh crore.

On innovation, the establishment of the Anusandhan National Research Foundation (ANRF) under the ANRF Act, 2023, and a ₹1 lakh crore Research, Development and Innovation Fund underline the focus on deep-tech and advanced manufacturing.

India’s innovation metrics reflect this:

• Global Innovation Index ranking improved from 66th (2019) to 38th (2025).

• 4th globally in trademarks, 6th in patents, 7th in industrial designs (2024).

• Among top four globally in critical technology research output.

Infrastructure: The Silent Enabler

PM GatiShakti has integrated 1,700 data layers across 57 ministries to streamline infrastructure planning. The National Logistics Policy and ULIP are strengthening supply chain integration, connecting 44 systems across 11 ministries.

Industrial corridor projects such as Dholera and Greater Noida have operationalised 350 industrial plots, attracting investments of ₹2.02 lakh crore.

The Union Budget 2026-27 signals that manufacturing is no longer just one sector among many — it is the central pillar of India’s next growth phase.

With sustained focus on competitiveness, technology adoption, MSME strengthening, infrastructure integration, and export expansion, India’s manufacturing sector is stepping into a new era.

If current momentum sustains, manufacturing will not just support growth — it will define India’s economic trajectory in the decades to come.