VIEWING THE UNION BUDGET 2026-27 solely through the lens of the Securities Transaction Tax (STT) hike — and the subsequent market rout that erased nearly ₹10 lakh crore in market capitalisation and sparked a Sunday ‘meme-fest’ among bruised investors — would be to miss the forest for the trees.

A careful attempt at separating the grain from the chaff brings to the fore the fact that finance minister Nirmala Sitharaman’s ninth consecutive Budget was a policy framework in continuity, with a long-term vision, rather than instant gratification.

Seen in isolation, it may look devoid of fireworks. But in the context of the government’s ongoing efforts towards Viksit Bharat by 2047, the Budget attempts to build the foundations for that, given the thrust on manufacturing, industries, MSMEs and the new economy. In a year when India received multiple ratings upgrades, if one were to borrow the language of rating agencies, this Budget definitely qualifies as BBB+, or Budget for Building Bharat, given the foundational spirit of the Budget for 2047 goals.

Also, ensconced between two mega bilateral trade agreements — India-EU on January 27 and India-U.S. on February 2, and coming on the heels of three major ones earlier this fiscal (the U.K., New Zealand and Oman), the Budget serves as a crucial link to establish the necessary ecosystem, and helps the industry potentially capitalise on the benefits of the government’s aggressive push on bilateral trade agreements.

This is where the Budget announcements — a 9% hike in public capital expenditure to ₹12.21 lakh crore in FY27, the Dankuni-Surat East-West dedicated freight corridor, 20 new national waterways over the next five years, coastal cargo promotion scheme to increase the share of inland waterways and coastal shipping to 12% by 2047, new city economic regions, and high-speed rail corridors — as “growth connectors” come into play.

“The maximum benefit of the big trade deals that India has done recently — the mother of all deals — should go to the youth of India and to India’s small and medium industries; major steps have been taken in the Budget in this direction,” Prime Minister Narendra Modi said in a video message after the presentation of the Budget. “In this Budget, an ambitious roadmap has been presented for Make in India and the Atmanirbhar Bharat Abhiyan to gain new momentum. The strength with which support has been given to the newly emerging industries, i.e., sunrise sectors, in this Budget, is unprecedented.”

“Biopharma SHAKTI mission, India Semiconductor Mission 2.0, Electronics Component Manufacturing Scheme, construction of rare-earth corridors, emphasis on critical minerals, new scheme in the textile sector, promotion of high-tech tool manufacturing, creating champion MSMEs — these are futuristic and take care of the current and future needs of the country,” he added. “The support that MSMEs and our small and cottage industries have received in this Budget will give them new strength to become local to global.”

The government’s view is very clear. It is all set to play the long game. During a media interaction a day after the Budget, Sitharaman said, “My investments (estimated in Budget FY27) are far more than borrowings. We are making sure that investments are a priority tool for sustaining growth.”

STT on F&O: An anecdote

She also explained the rationale behind the STT hike on futures and options (F&O), sharing an anecdote to underline the concern. “It has been made very clear that the STT hike is only on F&O, which is a highly speculative instrument.” She recounted that several parents had approached her with accounts of young members of their families incurring losses through F&O trading. “Youngsters in early-stage businesses are losing their hard-earned money in options trading,” she noted. “Are you going to just watch it and not do something about it, one parent asked me.”

The Budget has proposed to raise the STT on futures to 0.05% from the current 0.02%. “STT on options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively,” the finance minister said in her Budget speech.

Apart from this, the overarching theme of the Budget has been to ensure the creation of an ecosystem to promote manufacturing-led growth in the economy, with a view to enhancing global competitiveness. “We’ve gone into great detail to enable unlocking of various systems in the entire value chain, so that industries can move forward confidently,” Anuradha Thakur, secretary, Department of Economic Affairs, said during a post-Budget interaction with industry body Federation of Indian Chamber of Commerce and Industry (Ficci).

Focus on strategic resilience

Echoing this focus, chief economic advisor (CEA) V. Anantha Nageswaran said manufacturing sits at the heart of the Union Budget’s long-term economic strategy, with the government using it as a lever to build strategic resilience, strengthen the currency, and lower the cost of capital.

“The Budget’s focus is on strategic resilience, which is about making sure that we are able to function even if the world doesn’t supply certain things to us,” he said.

Nageswaran referred to interventions across sectors that are critical to industrial self-reliance. “These include rare earths mining, processing and manufacturing via a proposed rare earths corridor, domestic manufacturing of construction and infrastructure equipment, chemicals manufacturing, and the biopharma mission.”

At the same time, off-Budget measures are being taken by the government to ease cost pressures on manufacturers, according to Nageswaran. The Economic Survey, he noted, flagged how cross-subsidisation raises costs for the industry, an issue being addressed through reforms beyond the Budget. “The proposed Electricity Amendment Bill, which seeks to eliminate cross-subsidisation, is an example of reforms happening outside the Budget cycle that support manufacturing competitiveness.”

A Budget amid FTAs

The Budget push to manufacturing, at a time when India is finalising back-to-back trade agreements, is a welcome move. In fact, a day after the Budget, on February 2, Prime Minister Narendra Modi and U.S. President Donald Trump announced the India-U.S. bilateral trade agreement.

Commerce minister Piyush Goyal has said the India-U.S. deal is better than competing nations, and does not compromise the interests of the agriculture and dairy sectors. “India has got a good deal with the U.S. because of the personal relationship between the prime minister and U.S. President Donald Trump. The deal will open huge opportunities for the poor, fishermen, farmers and youth of the country,” Goyal said while addressing the media post the deal announcement.

“This trade deal with the U.S. is a good omen for India’s bright future. As part of the deal, the reciprocal tariff on Indian goods will come down to 18% from 50%,” he added. The U.S. deal is the fifth bilateral trade agreement India has signed in FY26 after FTAs with the EU, New Zealand, Oman and the U.K.

For the finance ministry, which has taken measures in the Budget to boost manufacturing, the move could not have been timed better. Hence, the ministry is also upbeat about the same. “The India-U.S. trade deal will further expand and deepen trade between two of the largest economies of the world. It will create more opportunities for our labour-intensive and manufacturing sectors in the U.S. market and give impetus to mutually-beneficial collaboration in high and advanced technology sectors,” revenue secretary Arvind Shrivastava said.

The manufacturing muscle

The Budget has unveiled initiatives with significant long-term implications for the manufacturing sector. Among them is the launch of the Biopharma SHAKTI scheme, backed by an outlay of ₹10,000 crore over the next five years, aimed at positioning India as a global biopharma manufacturing hub. “This will build the ecosystem for domestic production of biologics and biosimilars,” Sitharaman said in her Budget speech. Additionally, building on the India Semiconductor Mission (ISM) 1.0, the Budget also announced the launch of ISM 2.0 to produce equipment and materials, design full-stack Indian IP, and fortify supply chains.

As part of the push, the outlay for the Electronics Components Manufacturing Scheme, launched in April 2025, has been increased to ₹40,000 crore. In parallel, mineral-rich states of Odisha, Kerala, Andhra Pradesh, and Tamil Nadu will be supported in developing dedicated rare-earth corridors aimed at boosting mining, processing, research and downstream manufacturing capabilities.

The government also plans to set up three chemical parks through a challenge-based approach, adopting a cluster-led, plug-and-play model to attract investment. To enhance competitiveness and operational efficiency, 200 legacy industrial clusters will be revitalised. Additional measures include a ₹10,000-crore scheme over the next five years to promote container manufacturing, along with the creation of a dedicated ₹10,000-crore SME Growth Fund, among other initiatives.

All these moves, taken together, aim to reduce import dependence, while strengthening industrial depth and enhancing India’s strategic resilience, according to Nageswaran. He also pointed out that the manufacturing sector is crucial for currency stability as well. It may be noted that the rupee has depreciated 5.32% against the dollar in the last one year.

“From the medium-term perspective, the way we address the rupee’s value is through boosting manufacturing,” he said, citing international evidence from the post-Bretton Woods era (such as Germany, Singapore, the Netherlands, Switzerland, and Japan). He observed that nations with strong, stable currencies are typically those with deep manufacturing bases, while countries that lost their manufacturing edge experienced currency weakness over time.

Customs tweaks

Mega schemes on manufacturing have also been supplemented by basic custom duty tweaks, with an aim to making domestic industries more competitive globally. “Duty on solar manufacturing inputs, such as sodium antimonate used to make solar glass, are now reduced from 7.5% to NIL. Capital-goods exemption for lithium-ion cell manufacturing has been extended to Battery Energy Storage Systems (BESS). Exemptions for lithium-ion cells, parts, separators, and key raw materials are to be continued until March 31, 2028,” according to a Grant Thornton note.

Apart from these, the Budget has exempted components and parts required for the manufacture of civilian, training, and other aircraft from basic customs duty. Also, raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul requirements by units in the defence sector have been exempted from basic customs duty.

Explaining the rationale behind the duty rate changes and their impact, Vivek Chaturvedi, chairman, Central Board of Indirect Taxes and Customs (CBIC), told Fortune India that a calibrated approach has been taken. “We have looked at the sectors, which are significant for the country and the economy. For example, if you look at the energy sector, a host of measures have been taken. We have granted customs duty exemptions in case of goods for setting up of nuclear power projects.”

The measures are part of a broader strategy to strengthen domestic manufacturing while boosting export competitiveness across key sectors.

“Look at our exports. The leather industry… specifically shoe uppers are exported. We have exempted inputs for the manufacture of shoe uppers. In defence, we have exempted raw materials for the manufacture of parts for the maintenance and repair of aircraft in the defence sector,” Chaturvedi adds.

He also points out that the benefits of duty-free imports are being provided to make the industry strong, resilient and competitive. “Tomorrow you will have trade deals. It is a fact of life. It translates into preferential rate treatment to finished goods from the partner country to our market. The domestic industry is also in the same market space.”

Emphasising that trade deals work both ways, Chaturvedi says, “We get access to other markets. The same industry with this sort of resilience becomes globally competitive for exports. This, in a large way, is the philosophy behind the rate part.”

Ease of doing business

Apart from its focus on manufacturing and industry, the Budget also aims to strengthen India’s services sector, signalling the government’s ambition to position the country as a global leader in services with a targeted 10% share by 2047. Several measures have been taken on the direct tax front, a major one being the tax holiday till 2047 to boost investments in data centres.

“I propose to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. It will, however, need to provide services to Indian customers through an Indian reseller entity,” Sitharaman said in her speech.

The clarity provided on the data centres, even while retaining the sovereignty, is one of the foundational steps taken on the direct taxes front, among a slew of other measures, to ensure simplicity, ease of implementation, and reduction in litigation, Ravi Agrawal, chairman, Central Board of Direct Taxes (CBDT), tells Fortune India.

The Budget announcements are not isolated steps, but part of a broader, ongoing effort to streamline the direct tax framework, he says. “Last year, we presented the new Income Tax Bill, which was passed in August. Clarity, simplified language, and mitigating possibility of litigations have their own value when it comes to ease of [doing] business. Once that was passed, we started working on the forms and rules, which will be notified this month.”

“The second is process change. Litigation, multiplicity of proceedings, and criminality associated with defaults were the pain areas. These issues have now been taken care of. The third is resolving tax matters. At every stage of proceedings, we have provided an opportunity to the taxpayer to resolve the matter.”

Detailing the next phase of reforms, Agrawal outlines the key pillars underpinning the revamped tax administration. “Structural changes have been made. Some retrospective amendments have been done as courts were interpreting them in a different manner.” That certainty has been provided, he says, adding, if all these initiatives are taken together, beginning April 1, the new tax administration will be backed by an Act that is simple and complemented with these process changes.

Apart from the tax moves to aid ease of doing business and manufacturing, the Budget has set the ball rolling on the banking sector facelift for developed economy goals. A high-level committee on banking for Viksit Bharat has been announced to align the sector with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection.

Fiscal prudence

In announcing these moves, the Centre has met the fiscal glide path. The current year’s fiscal deficit target of 4.4% has been met, while the next year’s target has been pegged at 4.3%.

Also, with the rising share of capital expenditure in the overall expenditure pie, and a decline in revenue expenditure, it is clear that the government has set its sights on improving the quality of expenditure. From 12.1% in FY21, the share of capital expenditure has risen to 22.8% in the Budget estimate for FY27, while the share of revenue expenditure has come down from 81.3% to 67.9%.

However, concerns remain over a slowdown in the fiscal glide path, compared with previous years, say experts. “The pace of fiscal consolidation has moderated in the FY27 Budget. After achieving a reduction of 40 basis points from 4.8% of GDP in FY25 to 4.4% in FY26 [RE], the reduction in the FY27 [BE] is only 10 basis points, taking the FY27 fiscal deficit to 4.3% of GDP,” says D.K. Srivastava, chief policy advisor, EY India.

“In [the] medium term, from FY28 to FY31, the stated target is to reduce the debt-GDP ratio from the estimated 55.6% in FY27 [BE] to 50%+/- 1% in FY31. This moderation is due to a fall in the GoI’s gross tax revenue-GDP ratio, which has gone down from 11.5% in FY25 to 11.4% in FY26 [RE] and further to 11.2% in FY27 [BE],” he adds.

Sitharaman, however, has said the gradual glidepath is a conscious choice of the government, as “drastic changes” do not go down well. “One or the other section gets hurt. We will have to be gradual. But yet, keep it well within the band that gives confidence.”

Allocations to some of the Centrally-sponsored schemes, an important component of expenditure Budget, have been raised marginally or remained flat in FY27 Budget estimates.

Another concern the finance minister has herself expressed is on private sector investments. Being asked why the private sector is not coming forward to invest, her reply was cryptic. “It is for them to answer,” she said during a post-Budget media interaction.

All said, the message, and the long-term vision of the government is clear. “We are laying the path and giving a push to maintain the growth momentum. We want to ensure growth momentum and sustained economic growth. Primarily, we are looking at an ecosystem with structural reforms, which will go on,” Sitharaman said.

With the government building the blocks towards a Viksit Bharat by 2047 with the Budget announcements and the slew of FTAs, it is perhaps time for the country’s private sector to come forward and match the sprint.