The Union Budget 2026–27 reinforces the government’s focus on infrastructure, defence, electric vehicles, and manufacturing as key investment priorities to drive economic growth and strengthen self-reliance. These sectors have received targeted policy support and funding, signalling a continuation of the investment-led growth strategy.
Infrastructure Push
Public capital expenditure has been increased to Rs 12.2 lakh crore in FY 2026–27, representing a 9% rise from Rs 11.2 lakh crore in the previous year. This continues the government’s strategy of using infrastructure-led spending to stimulate growth, generate employment, and improve nationwide connectivity.
Key initiatives include the proposed construction of a new Dedicated Freight Corridor from Dankuni to Surat, aimed at optimising logistics and reducing transportation costs. The Budget also proposes the creation of 20 new national waterways to expand inland waterway capacity, alongside the Coastal Cargo Promotion Scheme. Together, these measures are intended to shift freight from congested road and rail networks to more efficient water-based routes.
Logistics costs in India are currently estimated at around 14% of GDP. The proposed measures aim to gradually move these closer to global benchmarks of 8–10% over time.
Urban development receives a strong push through the creation of City Economic Regions (CERs) in Tier II and Tier III cities. An allocation of Rs 5,000 crore over five years, through a challenge fund mechanism, is proposed to support the development of integrated economic regions with improved infrastructure.
The Budget also outlines seven high-speed rail corridors, including routes such as Mumbai–Pune and Delhi–Varanasi, which are expected to transform intercity mobility and support economic activity along these corridors.
To encourage private participation, an Infrastructure Risk Guarantee Fund has been proposed to provide risk protection for large projects. In addition, select Real Estate Investment Trusts (REITs) are expected to recycle assets from Central Public Sector Enterprises (CPSEs), helping unlock capital for new infrastructure investments. These measures build on the infrastructure expansion of the past decade, during which the national highway network expanded by over 60%, supporting multiplier effects across steel, cement, and construction sectors.
Key Infrastructure Initiatives
- Public capital spending: Rs 12.2 lakh crore in FY 2026–27
- Dedicated Freight Corridor: Dankuni–Surat corridor
- National waterways: 20 new waterways
- City Economic Regions: Rs 5,000 crore over five years for Tier II/III cities
- High-speed rail: Seven proposed corridors
- Private investment support: Infrastructure Risk Guarantee Fund and CPSE asset monetisation via REITs
Defence Modernisation
Defence expenditure has been raised to a record Rs 7.85 lakh crore, marking a 15% increase from Rs 6.81 lakh crore in the previous year. Capital expenditure stands at Rs 2.19 lakh crore, up 22%, with Rs 1.85 lakh crore earmarked for the acquisition of modern platforms such as fighter aircraft, unmanned systems, warships, and electronic warfare equipment.
The allocation for the Defence Research and Development Organisation (DRDO) is estimated at Rs 29,100 crore, supporting the broader objective of strengthening domestic defence manufacturing. This aligns with the Atmanirbhar Bharat initiative, under which India has significantly reduced its dependence on defence imports over recent years. The Budget also increases allocation for defence vehicles by 25.5% to Rs 4,580 crore.
These measures highlight opportunities across the defence value chain, including aerospace, electronics, and surveillance technologies. Private sector participation continues to expand, with over 500 companies now supplying to the defence ecosystem. Export opportunities further strengthen the sector’s long-term outlook, as India seeks to increase its presence in the global defence export market, estimated to exceed $100 billion.
Electric Vehicles Momentum
Electric mobility continues to receive policy support through the PM E-Drive initiative, which has a total outlay of Rs 10,900 crore, with Rs 1,500 crore allocated for FY 2026–27. Subsidies cover multiple segments, including two- and three-wheelers (Rs 3,679 crore), electric buses (Rs 4,391 crore), trucks and ambulances (Rs 1,000 crore), and charging infrastructure (Rs 2,000 crore).
While subsidies for electric two- and three-wheelers are set to conclude by March 2026, extensions through 2028 have been provided for heavier vehicle categories to address relatively slower adoption. For instance, e-rickshaw adoption remains below targeted levels, underscoring the need for continued support.
The initiative complements the FAME framework, which focuses on localisation and domestic manufacturing to reduce import dependence and build a robust EV ecosystem. Battery manufacturing, charging infrastructure, and component localisation remain priority areas. Industry estimates suggest that EVs could account for around 30% of total vehicle sales by 2030.
Despite challenges such as range anxiety and high upfront costs, Budget measures aim to significantly expand public charging infrastructure over the decade. Greater integration with renewable energy sources such as solar and wind is also expected to improve the sustainability of the EV ecosystem.
Manufacturing Revival
Strategic manufacturing receives a boost through expanded programmes such as ISM 2.0 for semiconductors, a Rs 40,000 crore investment in electronic components, and the development of Rare Earth Corridors in mineral-rich states to secure critical inputs.
Production-Linked Incentive (PLI) schemes across 14 sectors have released Rs 23,946 crore in incentives against cumulative production of Rs 1.97 lakh crore, with electronics emerging as a key beneficiary. Additional measures include a Rs 10,000 crore Container Manufacturing Scheme, new Hi-Tech Tool Rooms, enhancements to the Credit Interest Equalisation (CIE) scheme for exports, and the revival of 200 legacy industrial clusters.
Small and medium enterprises are supported through a Rs 10,000 crore Growth Fund, improved liquidity via TReDS platforms, and the introduction of ‘Corporate Mitras’ to ease compliance.
These initiatives align with the long-term objective of increasing manufacturing’s contribution to GDP from about 17% towards 25% by 2030, drawing on global manufacturing-led growth models. Sectors such as electronics, textiles, chemicals, and automobiles are expected to benefit, with PLI schemes projected to significantly boost output. The manufacturing push also carries substantial employment potential over the coming decade.
Wrapping Up
Overall, Budget 2026–27 reinforces an investment-led growth framework, with infrastructure, defence, electric mobility, and manufacturing emerging as key themes. While execution and global conditions will remain critical variables, the policy direction signals sustained support for sectors that can drive long-term growth, job creation, and economic resilience.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
