With reduced and exempted duties, tax relief for manufacturing, and increased support for startups, the Union Budget 2025-26 tackled a broader spectrum of issues in India’s electronics ecosystem. Industry reactions, however, remain mixed.
On 1st February 2025, Finance Minister Nirmala Sitharaman presented her eighth consecutive Union Budget. The Budget for Fiscal 2025-26 outlines ambitious plans under the ‘Viksit Bharat’ vision for a developed India. It projects total receipts (excluding borrowings) at ₹34.96 trillion and total expenditure at ₹50.65 trillion. Capital expenditure for FY26 has been revised downward to ₹10.18 trillion from ₹11.1 trillion in FY25.
Local manufacturing remained a focal point, with incentives for startups and adjustments to basic customs duties (BCD) on components and critical minerals. While no groundbreaking schemes were introduced, the Finance Minister repeatedly underscored the tech-driven era shaping India’s economy.
No duty, less cost, more local
Tariff rationalisation took centre stage this time. Among the key duty revisions, the BCD on interactive flat panel displays (IFPD) doubled from 10% to 20%, while their open cells and related components saw a reduction to 5% to support critical production. This move is expected to give a major boost to India’s ₹70 billion IFPD market, according to Sunil Vachani of Dixon Technologies.
Building on last year’s reforms, which lowered the BCD on open cell parts for LCD/LED TVs from 5% to 2.5%, these duties were now fully exempted, further cutting costs. Similarly, the BCD on inputs for wired headsets, microphones, fingerprint readers, and USB cables dropped from 2.5%. The industry welcomed these changes, anticipating a more competitive cost structure that drives investments and local production.
Lower data centre setup costs? That too. The BCD on carrier-grade Ethernet switches fell from 20% to 10%, making last-mile connectivity more affordable. From Adani to Microsoft, telecom players see this as a positive shift for India’s digital infrastructure.
| Table 1 revised BCD rates for IFPD components | |
| Interactive Flat Panel Displays (IFPDs) | BCD Rate(Budget 2025-26) |
| CBU | 20% |
| Flat panel display module | 15% |
| PCBA of IFPD | 15% |
| Open cell for flat panel display module with or without touch | 5% |
| Touch glass sheet | 5% |
| Touch sensor PCB | 5% |
More affordable EVs with duty-free battery waste
A significant shift came with the full exemption of BCD on cobalt powder, lithium-ion battery scrap, lead, zinc, and 12 other critical minerals, down from 5%. This is expected to lower production costs for industries dependent on these materials. “This move aligns with India’s vision for a circular economy, fostering investment in battery recycling and EV supply chains,” says Rajesh Gupta, Founder and Director of Recyclekaro.
Additionally, 35 items related to electric vehicle (EV) battery production and 28 used in mobile battery manufacturing were made duty-free, including capital goods essential for lithium-ion battery production. With lower costs, India is looking at more affordable EVs, the industry at higher adoption, and the job market at massive employment opportunities.
The tariff rate on alternating current (smart) electricity meters and luminaries, including lighting fittings, was reduced from 25% to 20%, effective 1st May 2025.
Meanwhile, amendments to the Customs (Import of Goods at Concessional Rates or For Specified End Use) Rules, 2022, extended the end-use compliance period from six months to one year and allowed quarterly statement filings instead of monthly ones.
Meanwhile, amendments to the Customs (Import of Goods at Concessional Rates or For Specified End Use) Rules, 2022, extended the end-use compliance period from six months to one year and allowed quarterly statement filings instead of monthly ones.
| Table 2 allocation for MeitY | |||||
| Category of Allotment | Actual 2023-24 (₹ billion) | Budget 2024-25 (₹ billion) | Revised 2024-25 (₹ billion) | Budget 2025-26 (₹ billion) | Change (%) |
| Promotion of electronics and IT hardware manufacturing (MSIPS, EDF and manufacturing clusters) | 6.94 | 7.5 | 6.77 | 7.12 | 5.17 |
| R&D in IT/Electronics/CCBT | 8.77 | 11.48 | 11.83 | 12.49 | 5.58 |
| Capacity building and skill development scheme | 4.34 | 5.37 | 5.37 | 5.75 | 7.08 |
MeitY at the heart of India’s electronics ecosystem
The Ministry of Electronics and Information Technology (MeitY) received a 48% budget increase for FY26, rising to ₹260.26 billion from ₹219.37 billion. The enhanced allocation strengthens key initiatives, including the ₹20 billion IndiaAI Mission and expanded schemes for semiconductor development and large-scale electronics manufacturing.
Allocation of ₹ 70 billion for semiconductors
MeitY’s semiconductor development budget surged by 83% to ₹70 billion. The ‘Modified Scheme for Setting Up Semiconductor Fabs’ saw a 56% increase, rising to ₹39 billion from ₹25 billion in FY24, while funding for establishing semiconductor fabs in India doubled to ₹24.99 billion from ₹12 billion. The design-linked-incentive (DLI) scheme received ₹2 billion.
Industry experts stress the urgency for India to develop its own semiconductor intellectual property and products, particularly amid global geopolitical shifts and US sanctions.
More funding for mobile PLI scheme, but components?
The PLI scheme for mobile phone manufacturing saw a 45% boost, raising allocations to ₹88.85 billion for FY26. This will drive Apple, Samsung, and Dixon to expand manufacturing, with smartphone exports projected to hit ₹1.70 trillion—up 31% from FY24.
IT hardware PLI also saw a staggering 283% increase to ₹1.15 billion, strengthening India’s tech manufacturing clusters for laptops, tablets, and servers.
However, concerns persist over the lack of clarity on ISM 2.0 (incentives beyond $10 billion) and the absence of a PLI scheme for component manufacturing.
Taxation eased for individuals
The Budget introduced a 25% presumptive tax for non-residents providing services in this sector, along with a safe harbour provision to ensure tax certainty for those storing components for specified manufacturing units.
A multi-year approach to Transfer Pricing was proposed to stabilise cross-border transactions, allowing arm’s length price (ALP) determinations to span three years—reducing administrative burdens and ensuring compliance consistency. Taxation reforms also include rationalising TDS and TCS rates to simplify compliance and address taxpayer concerns.
Another key relief—residents earning up to ₹1.2 million annually will pay no income tax under the new regime, thanks to enhanced rebates. According to an ICEA report, this is expected to boost disposable incomes, drive domestic consumption, and fuel demand for electronics.
| Table 3 Revised funding for semiconductor investments | |||||
| Category of Allotment | Actual 2023-24 (₹billion) | Budget 2024-25 (₹billion) | Revised 2024-25 (₹billion) | Budget 2025-26 (₹ billion) | Change (%) |
| Modified scheme for setting up of compound semiconductors/silicon photonics/sensors fab/ discrete semiconductors fab and semiconductor assembly, testing, marking and packaging (ATMP)/ outsourced semiconductor assembly and test (OSAT) facilities in India | 6.44 | 42.03 | 25 | 39 | 56 |
| Modified scheme for setting up of semiconductor fabs in India | – | 15 | 12 | 24.99 | 108.25 |
| Modified scheme for setting up of display fabs in India | – | 1 | 0.0001 | 0.0004 | 300 |
| Modernisation of semiconductor laboratory, Mohali | 0.06 | 9 | 0.11 | 4 | 3536.36 |
| Design linked incentive scheme | 0.3 | 2 | 1.05 | 2 | 90.48 |
| Total – Modified programme for development of semiconductors and display manufacturing ecosystem in India | 6.81 | 69.03 | 38.16 | 70 | 83.43 |
More solar, more electronics to manage its energy
The Pradhan Mantri Surya Ghar Muft Bijli Yojana, launched in 2024, received an 80% budget hike to ₹200 billion for FY26. The programme aims to increase solar-powered households from 800,000 to 10 million by 2027, backed by a ₹750.21 billion outlay and installation subsidies of up to 40%.
With solar power costs dropping, the government’s sustainability push demands an electronics sector transformation to handle this energy shift. Finance Minister Nirmala Sitharaman introduced the ‘National Manufacturing Mission’ to drive innovation in solar PV cells, EV batteries, and grid-scale storage solutions. Emphasising self-reliance, she highlighted a focus on high-tech sectors that complement renewable energy growth, including electrolysers for hydrogen production, wind turbines, and ultra-high-voltage transmission equipment.
| Table 4 The increased PLI allotments | |||||
| Category of Allotment | Actual 2023-24 (₹billion) | Budget 2024-25 (₹billion) | Revised 2024-25 (₹billion) | Budget 2025-26 (₹billion) | Change (%) |
| PLI for large scale electronics manufacturing | 42.3 | 61.25 | 57.47 | 88.85 | 54.6 |
| PLI for IT hardware | 0.54 | 0.75 | 0.3 | 1.15 | 283.33 |
| Total | 42.84 | 62 | 57.77 | 90 | 55.79 |
All that is for startups and innovation…
The Union Budget reinforced support for startups and MSMEs, extending the startup benefit window by five years, and allowing incorporation until April 1, 2030. A new ₹100 billion ‘Fund of Funds’ will further bolster startups, supplementing the ₹910 billion already committed to Alternate Investment Funds (AIFs).
To drive next-gen innovation, a ‘Deep Tech Fund of Funds’ is also under consideration. With an increased credit guarantee cover enabling ₹1.5 trillion in additional funding over the next five years, credit access for MSMEs and startups will expand.
The Finance Minister also announced an Export Promotion Mission, with sectoral and ministerial targets led by the Ministries of Commerce, MSME, and Finance. The initiative aims to improve export credit access, provide cross-border factoring support, and help MSMEs navigate non-tariff barriers in global markets.
Sarvagya Mishra, founder and director at Superbot, a Gurugram-based AI-tech company, welcomed the government’s focus on skill development. “We particularly commend the ₹5 billion Centre of Excellence for AI in Education. The Deep Tech Fund of Funds is another major step toward fostering innovation,” he noted.
India will be a global toy hub
Sitharaman revealed plans to establish India as a global hub for toy manufacturing, expanding on the ‘National Action Plan for Toys.’ The initiative aims to develop manufacturing clusters, enhance skills, and create a sustainable ecosystem for producing high-quality, innovative toys under the ‘Made-in-India’ brand.
Following the Budget, on February 6th, MeitY’s Centre for Development of Advanced Computing (CDAC) partnered with global toy leader LEGO to upskill young engineers in a year-long R&D programme focused on electronic toys.
Skill development for school students
The Finance Minister announced the creation of 50,000 Atal Tinkering Labs (ATLs) in government schools over the next five years, designed to foster curiosity, innovation, and a scientific mindset among students. These labs will offer hands-on learning in STEM subjects, featuring tools for robotics, electronics, and 3D printing.
The Budget also includes plans to expand broadband connectivity to all government secondary schools and primary health centres in rural areas through the Bharatnet project.
Post-session
Ahead of the Union Budget, the Indian electronics and semiconductor industry eagerly awaited proposals to boost innovation, R&D, and exports. Many industry veterans called for tax relief for R&D, an extended design-linked incentive scheme, export incentives, and increased support for MSMEs. Leaders also pushed for greater funding for semiconductor manufacturing and tax benefits for fabrication plants.
Post-Budget, concerns were raised about the BCD reduction.
“The recent reduction in customs duties to zero on open cells and component manufacturing, applicable only to bonded manufacturing plants, creates an uneven playing field for TV manufacturers without access to such facilities. This policy is not welcomed by the broader TV manufacturing industry. For true growth, these benefits should be extended more equitably across the sector,” says Avneet Singh Marwah, CEO of Super Plastronics Private Limited.
In contrast, Bharath Aitha, Vice President of Marketing at eInfochips of Arrow Electronics, praises the Budget as a “forward-looking blueprint,” noting that the ₹200 billion allocation for private sector-driven R&D and the proposed Deep Tech Fund would significantly benefit the semiconductor ecosystem.
Only time will reveal how these measures are implemented, and whether they will effectively drive the growth of India’s electronics sector.
Shubha Mitra is a journalist at EFY.
