India’s Finance Minister Nirmala Sitharaman has presented her annual budget for 2026-27, announcing higher infrastructure spending and measures to support domestic manufacturing amid rising global uncertainties.
India is expected to close this financial year with 7.4% gross domestic product (GDP) growth according to the country’s Economic Survey, but economic expansion will slow slightly next year as US President Donald Trump’s 50% tariffs on Indian exporters start taking a greater toll.
The budget has laid a strong emphasis on fiscal restraint, targeting a lower deficit for the upcoming financial year. The fiscal deficit is the gap between the government’s total expenditure and its total revenue.
Here are five key takeaways from the budget announcements:
Record infrastructure spending, higher defence outlays
Infrastructure such as road, port and railway projects has been a mainstay focus of the Narendra Modi government for the past decade, and this budget continues to expand allocations to these sectors.
The capital spending target for the upcoming financial year beginning 1 April has gone up some 9% to 12.2tn rupees ($133.1bn; £105bn) from 11.1tn rupees.
Outlays for defence have also jumped by over 20% in the backdrop of heightened geopolitical tensions globally.
A view of a newly inaugurated multi-lane highway near Delhi on 17 August 2025
The budget has continued to lay emphasis on infrastructure-led capital expenditure [Hindustan Times via Getty Images]
Manufacturing push in strategic sectors like rare earths, semiconductors
The government has proposed to scale up manufacturing in seven strategic sectors including semiconductors, data centres, textiles and rare earths, amid slowing private investments and a flight of foreign capital from India.
Sitharaman announced that dedicated corridors will be set up for rare earth minerals in four states, including Tamil Nadu, Kerala and Andhra Pradesh in the south and Odisha in the east. The announcement follows India’s approval of a 73bn-rupee rare earths scheme unveiled in November.
The budget also launched a second semiconductor mission with an outlay of $436m to produce equipment and materials and design full-stack intellectual property.
India is also proposing a tax holiday up to 2047 for foreign cloud companies making data-centre investments in the country and providing cloud services to customers globally. India has been attracting billions of dollars of data centre investments with the likes of Google last year announcing a $15bn investment in a facility in southern India.
This provides «long-term fiscal certainty for a highly capital-intensive sector, significantly improving investment viability and accelerating capacity creation», said Ritika Loganey Gupta of Ernst & Young India.