From ISM 2.0 to a big boost for manufacturing, the Budget 2026-27 reshaped the electronics playbook. But what it delivers and what it leaves unsaid may matter even more for the industry.
Finance Minister Nirmala Sitharaman presented her ninth Union Budget on February 1, 2026, which was also the first time India’s Budget was tabled on a Sunday. Coming against the backdrop of global trade uncertainty, including tariff pressures from the United States, the Budget sought to balance growth, fiscal discipline, and long-term structural reforms.
For the electronics industry, it delivered a mix of expansionary incentives, supply-chain strengthening measures, and a clear push towards semiconductors, data centres, electric mobility, and emerging technologies such as artificial intelligence.
The Budget followed the Economic Survey 2025–26, tabled on January 29, which projected GDP growth of 7.4% for 2025-26 and placed growth for 2026-27 in the range of 6.8% to 7.2%. The Survey highlighted the need for fiscal flexibility and resilience amid external shocks.
Notably, electronics manufacturing stocks rallied, with the sector gaining up to 6% following the Budget session at the lower house of the Parliament.
ISM 2.0 announced
One of the most consequential announcements for the electronics ecosystem was the expansion of the India Semiconductor Mission. Building on ISM 1.0, which laid the groundwork for fabs and ecosystem development, the government unveiled ISM 2.0 with a wider mandate to enable domestic production of semiconductor equipment and materials, develop full-stack Indian intellectual property (IP), and strengthen supply chains. Industry-led research and training centres will also be established to support technology development and skills development.
This sharper focus on depth rather than just capacity aligns with pre-budget industry expectations. Hareesh Chandrasekar, CEO and Co-founder of AGNIT Semiconductors, said Budget 2026 was an opportunity to move “from intent to impact”, adding that a stronger ISM 2.0 backed by funding beyond the earlier $10-billion outlay could catalyse the next phase of semiconductor manufacturing growth.
A ₹400 billion boost for ECMS
The Budget also doubled down on component-level localisation. The Electronics Components Manufacturing Scheme (ECMS), launched in April 2025 with an outlay of ₹229.19 billion, has already attracted investment commitments worth twice its original target, noted the finance minister. Capitalising on this momentum, the government proposed increasing the outlay to ₹400 billion.
Further, to deepen value addition in consumer electronics, basic customs duty (BCD) has been exempted on specified parts used in the manufacture of microwave ovens. However, some exemptions are being rolled back from April 1, 2026, including concessional duties on silicon for undiffused silicon wafers and on certain film and television equipment imported by foreign production units; a gradual tightening as domestic capabilities build.
For logistics and data centres
For electronics manufacturing logistics, a safe-harbour profit margin of 2% of the invoice value has been extended to non-resident warehousing components in bonded warehouses. This would translate into an effective tax rate of about 0.7%, making India more competitive than several alternative manufacturing destinations and supporting just-in-time production models.
Meanwhile, recognising data centres as critical digital infrastructure, the Budget announced a tax holiday until 2047 for foreign companies that provide cloud services globally, using data centre services located in India, provided that services to Indian customers are routed through an Indian reseller.
A safe harbour margin of 15% has also been introduced for related-party data centre service providers. These measures are expected to significantly boost investment in hyperscale data centres, with positive spillovers for electronics hardware, power equipment, and cooling solutions.
Capital goods, rare-earths, and clean energy inputs
To strengthen capital goods capability, a key determinant of manufacturing productivity, the Budget proposed that CPSEs set up hi-tech tool rooms at two locations. These digitally enabled, automated service bureaus will locally design, test, and manufacture high-precision components at scale and lower cost.
Focusing on critical manufacturing again, the government announced support for dedicated Rare Earth Corridors in mineral-rich states such as Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. This follows the launch of the Rare Earth Permanent Magnet Scheme in November 2025 and aims to promote mining, processing, research, and manufacturing, critical to electronics, EVs, and renewable energy technologies.
Customs duty exemptions were also extended to capital goods used for manufacturing lithium-ion cells for battery energy storage systems, and sodium antimonate imports for solar glass manufacturing were exempted from BCD.
AI and emerging technologies take centre stage
Sitharaman acknowledged artificial intelligence (AI) as a central pillar of the government’s technology vision. The Budget reiterated its support for the AI Mission, the National Quantum Mission, the Anusandhan National Research Fund, and the Research, Development and Innovation Fund.
Complementing this was the announcement of a ₹100 billion SME Growth Fund to create future champions and a ₹20 billion top-up to the Self-Reliant India Fund to support micro-enterprises with risk capital.
While not electronics-specific, this fund can support growth-stage electronics and deep-tech startups, particularly those facing high capital needs and long commercialisation cycles.
Industry leaders welcomed the emphasis but flagged gaps. Amit Kumar Tyagi, CEO of TrueReach AI, said the Budget should treat AI as strategic national infrastructure and called for restoring the 200% weighted deduction for R&D, customs duty holidays on GPUs and TPUs, and faster deployment of the Deep Tech Fund of Funds.
Covasant Technologies echoed similar expectations around affordable AI infrastructure, R&D tax credits, regulatory sandboxes, and public procurement for Indian AI firms.
Post-Budget, Atul Rai, CEO and Co-founder of Staqu Technologies, said the Budget clearly recognised AI as a strategic driver of inclusive growth and marked a shift from experimentation to large-scale deployment.
EVs and electronics: expectations vs delivery
While the Budget strengthened the upstream electronics sector, EV-focused industry players felt that some long-standing issues remained unaddressed. Madhumita Agrawal, Founder and CEO of Oben Electric, reiterated concerns around the inverted GST structure, where EVs attract 5% GST while key inputs are taxed at 18%. She also called for targeted incentives for electric motorcycles, which dominate India’s two-wheeler market but remain under-electrified.
Similarly, Kunal Arya of Zelio E-Mobility and Sameer Moidin of EVeium Smart Mobility emphasised the need for deeper localisation of battery cells, controllers, and power electronics, rationalised GST, affordable financing, and a clear national charging roadmap.
While the Budget supported battery manufacturing and rare-earths, direct GST reforms and demand-side EV incentives were notably absent.
However, the industry reaction seemed positive. Jaideep Wadhwa, Director at Sterling Tools Limited, noted, “The proposal to create Rare Earth Corridors is the missing link for India’s EV sovereignty, directly addressing long-standing dependence on imported NdFeB magnets. By de-risking the value chain from mining to advanced manufacturing and backing strategic and frontier sectors, Budget 2026 lays the foundation for true Atmanirbharta in electric mobility.”
Television and consumer electronics
Ahead of the Budget, Arjun Bajaj of Videotex had called for a dedicated PLI scheme for television manufacturing, temporary duty relief for critical components, and export-focused incentives. While the Budget did not announce a TV-specific PLI, its broader push on components, semiconductors, and capital goods may offer indirect benefits to the sector.
Budget overview
At a macro level, the Budget continued to prioritise public investment while maintaining fiscal discipline. Capital expenditure for FY26 was placed at ₹11.2 trillion, with FY27 capex proposed at ₹12.2 trillion.
The fiscal deficit was revised to 4.4% of GDP for FY26 and budgeted at 4.3% for FY27, with the government confirming it has met its FY22 commitment to bring the deficit below 4.5% by FY26.
The Budget is anchored on nominal GDP growth assumptions of 10.5–11%. For FY27, non-debt receipts are estimated at ₹36.5 trillion.
Final thoughts
Overall, Union Budget 2026-27 signals a clear intent to move India’s electronics industry up the value chain. As the Lok Sabha got adjourned at noon after the Budget, only time will tell how successfully these measures are implemented and whether they will effectively drive the growth of India’s electronics sector.
However, gaps remain in GST rationalisation, targeted EV demand incentives, and sector-specific PLIs. For an industry seeking depth, stability, and predictability, this Budget appears to leave room for sharper execution and course correction going forward.
