By Rajeev DimriAnnounced against the backdrop of heightened geopolitical tensions, the Union Budget 2026–27 carried expectations of reinforcing India’s global standing—especially in light of recently concluded Foreign Trade Agreements. The Budget 2026 continues to advance India’s long‑term strategic narrative: strengthening manufacturing as the core engine of growth while simultaneously expanding the country’s capabilities in services and digital trade.
Manufacturing – the Anchor of India’s Growth StoryThe Finance Minister reaffirmed the centrality of manufacturing to India’s economic strategy. Large‑scale investments in textiles, semiconductors, rare‑earth mining, infrastructure, and MSME development signal the Government’s intent to build resilient, future‑ready industrial capacity. These interventions align strongly with India’s aspiration to emerge as a global manufacturing hub.A Renewed Push to Build a Global‑Scale Services EconomyComplementing manufacturing, the Budget underscores the Sankalp for accelerating and sustaining economic growth, fulfilling citizen aspirations, and advancing the vision of Sabka Saath, Sabka Vikas within the framework of the three Kartavyas. This focus manifests in initiatives aimed at strengthening the services ecosystem and positioning India deeper within global value chains.Several targeted interventions demonstrate this intent. In a major relief to the IT sector, the Government has introduced several tax reforms, including but not limited to consolidating services under a single category of IT Services with a common safe‑harbour margin of 15.5 percent, increasing the safe-harbour threshold from ₹300 crore to ₹2,000 crore to ease compliance for large taxpayers, and introducing tax holidays until 2047 for foreign companies offering cloud services through India‑based data centres, with a 15 percent safe‑harbour for related entities providing supporting data‑center operations. These key reforms would aid in creating long‑term policy predictability and reinforce India’s digital infrastructure competitiveness.As regards providing a push to the creative industries, establishment of AVGC Content Creator Lab in schools and colleges is likely to accelerate skill development in animation, gaming, VFX, and digital content creation industries which are already experiencing exponential global demand.In terms of alleviating the tourism and hospitality needs of India, a National Institute of Hospitality is proposed which would integrate academia, industry, and the Government. This move is expected to uplift service standards, aligning India’s hospitality workforce with global benchmarks, scale up India’s tourism offerings, boost employment, and enhance economic contribution from both domestic and international tourism.With education and healthcare forming the backbone of any resilient economy, the Budget’s initiatives—such as the creation of a High‑Powered “Education to Employment and Enterprise” Standing Committee and the upgrading of existing institutions alongside the establishment of new centres for training Allied Health Professionals—represent critical forward‑looking interventions. These measures are expected to significantly narrow the skill gap by aligning academic curricula with evolving industry needs, ensuring that learners acquire job‑ready competencies. Together, they will not only enhance employability but also strengthen the quality and preparedness of India’s future workforce, positioning the country to meet the growing demands of a rapidly transforming economic landscape.On a separate note, the Budget lays out a forward‑looking roadmap for strengthening maritime and inland logistics. The introduction of new Dedicated Freight Corridors connecting the East and the West, along with 20 new National Waterways to improve connectivity between mineral belts, industrial hubs, and ports, signals a major push toward integrated transport infrastructure. The proposed development of a ship‑repair ecosystem for inland waterways and the launch of the Coastal Cargo Promotion Scheme—aimed at doubling the share of coastal and inland waterway cargo by 2047 – further demonstrates the Government’s commitment to modernizing multimodal logistics.Bolstering Trust‑Based Governance and introducing specific customs reformsReflecting a clear shift from policing to facilitating trade, the Budget introduces a series of trust‑based governance measures aimed at enhancing efficiency, predictability, and transparency within customs processes.Key reforms include the extension of the duty‑deferral period for Tier 2 and Tier 3 AEOs from the current 15 days to 30 days, providing businesses with improved cash‑flow flexibility and reduced working‑capital strain. Additionally, the validity of binding advance rulings has been increased from 3 to 5 years, offering greater certainty to importers and exporters in planning their tax positions. The Government has also proposed recognizing regular, compliant importers within customs risk‑assessment systems, thereby reducing repetitive verification and enabling faster cargo clearance for trusted entities in addition to streamlining the overall Customs Integrated System.While the journey toward fully meeting expectations on Customs simplification has only begun, the initiatives announced in the Budget mark a clear and progressive shift toward enhancing ease of doing business and improving predictability across trade processes. These reforms reinforce the Government’s intent to build a more efficient, trust‑based regulatory environment for importers and exporters alike.It is also noteworthy that the Budget continues to advance India’s agenda of becoming a more attractive investment destination. Key measures include permitting Persons Resident Outside India (PROIs) to invest in listed Indian equities through the Portfolio Investment Scheme, rationalizing TDS/TCS rates to reduce compliance burden, and decriminalizing procedural lapses such as non‑production of books of account or delays in tax deduction payments. Collectively, these steps strengthen investor confidence, improve regulatory clarity, and align with India’s broader objective of fostering a transparent, growth‑oriented business ecosystem under the broader vision of Viksit Bharat.Last WordOverall, the Budget 2026–27 has been delivered with clarity, balance, and a long‑term vision. It successfully addresses expectations across sectors—strengthening manufacturing, deepening services capability, modernizing logistics, and promoting trust‑based governance. This year’s Budget, in many ways, sets the tone for India’s next phase of economic transformation.(Rajeev Dimri is Partner, Tax, KPMG in India. With inputs from Kunal Kohli, Director – Indirect Tax, KPMG in India)
