In the Union Budget presented for FY 2026–27, defence, strategic sectors and infrastructure were among the most closely watched areas.
The Budget includes several announcements related to these sectors, with a noticeable emphasis on manufacturing and supply-chain capacity building.
Defence Sector: Mega Hike Amid Global Challenges
The Finance Minister increased the country’s defence budget from ₹6.81 lakh crore to ₹7.85 lakh crore. Out of this, ₹2.19 lakh crore will be spent on the modernisation of the armed forces, compared to ₹1.80 lakh crore last year.
The focus remains on supporting domestic production and strengthening the maintenance ecosystem.
One key measure proposed is the exemption of basic customs duty on raw materials imported for manufacturing aircraft parts used in maintenance, repair and overhaul (MRO) activities by defence sector units. The objective of this move is to enable domestic MRO operations and reduce dependence on imports.
Atmanirbharta in Semiconductors and Critical Minerals
The Budget announces the launch of India Semiconductor Mission (ISM) 2.0. This phase will focus on the production of semiconductor equipment and materials, development of full-stack Indian intellectual property, and strengthening semiconductor supply chains.
ISM 2.0 is positioned as an expansion of existing semiconductor initiatives, with greater emphasis on design capabilities and the supporting ecosystem alongside manufacturing.
In the context of critical minerals, the Budget proposes the establishment of dedicated rare earth mineral corridors in Odisha, Kerala, Andhra Pradesh and Tamil Nadu. These corridors are intended to integrate mining, processing, research and manufacturing within a single framework.
Additionally, the Budget includes provisions to support states in setting up three dedicated chemical parks, aimed at reducing import dependence in the chemicals sector through a cluster-based, plug-and-play model.
For the electronics sector, the outlay under the Electronics Components Manufacturing Scheme has been increased to ₹40,000 crore. This enhancement follows investment commitments that nearly doubled the earlier target of ₹22,999 crore.
Infrastructure: Capital Expenditure and Logistics
For FY 2026–27, capital expenditure (capex) has been raised to ₹12.2 lakh crore. This allocation is meant for projects related to roads, railways, urban infrastructure, logistics and industrial connectivity.
As part of logistics reforms, the Budget proposes a new dedicated freight corridor from East to West, specifically connecting Dankuni to Surat.
Alongside this, there is a continued emphasis on expanding national waterways to improve connectivity between mineral-rich regions—particularly Odisha and eastern India—and ports and industrial hubs.
To encourage private sector participation in infrastructure projects, the Budget also proposes the establishment of an Infrastructure Risk Guarantee Fund, intended to partially cover project risks during the construction phase.
