Union Budget FY27: What India expects, what it may deliver

India’s pre-Budget phase ahead of the Union Budget 2026–27 has been marked by intense consultations and rising expectations from industry and policy stakeholders.

Key demands include stronger support for manufacturing and technology, particularly artificial intelligence (AI) and the extension of Production-Linked Incentive (PLI) schemes along with tax simplification, infrastructure expansion, and continued thrust on flagship initiatives such as Make in India, defence indigenisation, and green growth.

Once the Budget is unveiled, post-Budget analysis will focus on actual allocations, changes in income tax slabs, and sector-wise measures. This includes possible revisions in customs duties, especially for electronics and critical components, which will play a decisive role in shaping India’s fiscal direction and economic momentum for the year ahead.

The FY27 Union Budget is expected to prioritise strategic sectors such as defence manufacturing, semiconductors, and renewable energy, while also expanding opportunities in the ‘new economy’. Higher capital expenditure on infrastructure and a renewed focus on supply-side reforms to attract domestic and foreign investment are anticipated.

Other focus areas include strengthening MSMEs, boosting domestic manufacturing through enhanced PLI schemes, promoting next-generation technologies such as AI and robotics, achieving defence self-reliance, expanding infrastructure, and ensuring fiscal resilience.

One of the key expectations from the Budget is to cushion the impact of rising global tariffs in 2026 through the simplification and rationalisation of India’s customs duty structure. A comprehensive overhaul, aimed at reducing the number of duty slabs, could enhance predictability and improve ease of doing business for both importers and exporters.

Sameer Gupta, National Tax Leader at EY India, said: “To stimulate private investments, the existing Production-Linked Incentive (PLI) scheme may be extended to new-age technology sectors such as AI, space, and robotics. Public infrastructure investments in futuristic areas, including AI, GenAI, robotics, and space technology, may induce growth of private investment in these sectors. .

Targeted incentives for the emerging industries will be crucial in driving innovation and attracting both domestic and foreign investors. On the tax front, businesses look for a strong commitment to tax certainty and streamlined compliance processes.”

Technology adoption has become critical for MSME competitiveness. From automation and data analytics to energy-efficient machinery and compliance software, the cost of modernisation continues to rise.

Industry stakeholders are calling for enhanced capital subsidy schemes that support technology upgrades. Revising investment ceilings under existing programmes would allow enterprises to adopt advanced tools that improve productivity, reduce waste, and meet global quality standards.

Such investments would also align MSMEs with India’s broader goals of manufacturing competitiveness, digital transformation, and climate resilience.

Meanwhile, India’s logistics ecosystem is undergoing a significant transformation. By shifting freight to dedicated corridors, pressure on regular railway routes has eased, leading to more punctual passenger services and reduced delays.

Industries benefit from faster movement of essential goods such as coal, cement, containers, and agricultural produce, lowering logistics costs and strengthening supply chains. The shift from road to rail also supports cleaner and more sustainable transport.

The continued expansion of the Dedicated Freight Corridor (DFC) network is enabling Indian Railways to better serve small businesses, exporters, and major trade routes. With further upgrades in digital systems and locomotive technology, more efficiency milestones are expected. As of January 2026, this progress reinforces Railways’ central role in both passenger mobility and freight movement.

After two years of range-bound budgetary growth, the focus is likely to remain on easing congestion across busy corridors, strengthening freight capacity, and upgrading stations and rolling stock to meet rising demand.

According to Suprio Banerjee, Vice President & Co-Group Head at ICRA Ltd, the upcoming railway budget is unlikely to witness sharp increases in allocations but will stay aligned with recent trends.

“ICRA anticipates a range-bound increase in Railways’ budgetary allocation for FY2026–27, given the trend over the past two years, around 5% year-on-year growth in FY2025 and FY2026BE, reaching Rs 2.65 lakh crore, including extra budgetary resources of Rs 10,000 crore,” he said.

“With electrification nearly complete, the focus will remain on decongestion through capacity augmentation—new routes, gauge conversion, track doubling, and dedicated freight corridors. Infrastructure modernisation, including rolling stock upgrades and station redevelopment, along with safety enhancements, will remain critical,” Banerjee added.

He further noted that within capacity expansion, economic corridors, especially those linked to ports and mineral logistics, along with the accelerated deployment of Kavach 4.0 and advanced signalling systems, will dominate both budgetary priorities and execution strategies.

Globally, the semiconductor shortage has disrupted manufacturing industries. As demand soars, supply is likely to be constrained in the near term, but gradually ease up in 2023.

While supply constraints are expected to ease gradually, India has a unique opportunity to leverage its large domestic market and government initiatives to build a robust domestic semiconductor and electronics manufacturing ecosystem over the next three to five years.