The upcoming Union Budget 2025-26 (Budget) is anticipated to build on the momentum of sustainable growth, by increasing investments, targeting simplification in tax laws, and introducing targeted policy reforms and incentives – which is expected to boost industrial growth in India and reinforce India’s position as an attractive foreign investment destination in the world.
It is anticipated that the upcoming budget will lay emphasis on increased budget allocation for crucial sectors (such as infrastructure, research and development (R&D), technology and railways), and key policy reforms to elevate global competitiveness and ease of doing business and enhance participation of private players (including foreign investors).
In agriculture sector, the upcoming Budget is expected to focus on enhancing productivity through advanced research, climate-resilient crop varieties, initiatives like Atmanirbharta for oilseeds, and creation of credit guarantee fund trust to adequately cover agricultural loans, programs promoting natural farming, vegetable supply chains, and shrimp production and the development of digital public infrastructure for farmer support. It is further anticipated that the Budget will aim at supporting infrastructure sector by accelerating private investments, increasing budget allocation and asset monetarisation plans.
Industrial parks: Engines of growth
Building on the need for infrastructure investment, industrial parks in India serve as designated hubs for industrial activities, offering ready-to-use infrastructure such as power, water, telecommunications and transportation. The Union Budget 2024-25 proposed to create 12 industrial parks under the plug-and-play model under National Industrial Corridor Development Programme. The innovative plug-and-play model within these parks would further accelerate industrial development by providing pre-built factories and essential services, enabling businesses to commence operations swiftly without extensive setup delays. The improved infrastructure through these industrial parks would gravitate more companies across the world to set up their businesses in India (particularly small and medium enterprises (SMEs) from Japan, Taiwan and South Korea) and this would position India as a compelling alternative manufacturing hub compared to other developing nations. The upcoming budget can be expected to introduce reforms to expedite the development of these industrial parks based on plug-and-play model, provide infrastructure financing and improve the logistical sector to attract global manufacturers.
The need to emphasise on R&D sector
To transform India into a global manufacturing hub, and foster value addition and innovation, significant policy reforms would also be critical in R&D sector. It is to be noted that India’s budgetary allocation in R&D is lower compared to countries such as USA, China, South Korea etc. The fund allocation in R&D, particularly in the automobile segment, can be expected in the budget in order to increase investments in innovation technologies and develop more sustainable and competitive automotive technologies. Further, the Indian government should consider allowing 100% foreign direct investment (FDI) in R&D segment across all critical sectors in order to boost technological advancement, innovation, value addition and sustainability and thereby position India as a global leader in R&D. The Indian government should also consider enhancing the existing tax incentives for R&D activities. Additionally, Indian government should consider establishing dedicated R&D hubs with benefits similar to those in Special Economic Zones – with tax exemptions, duty waivers, and infrastructure support to attract multinational corporations to set up their R&D centers in India.
Driving growth in technology sector under the Budget
Under the upcoming Budget, the Indian government is also expected to tap the transformative potential of the technology segment, particularly artificial intelligence (AI). The leaders in the technology industry are expecting tech-related reforms under the Budget in terms of increased budget allocation for developing technology infrastructure, ethical guidelines for AI development and tax reforms for AI-based companies. The adoption of public private partnership (PPP) models could be critical for the growth of tech industry, and in this regard, the Indian government should take cues from the models adopted across the world such as the research and innovation funding programme, Horizon 2020, adopted by the European Union towards AI research in fields of agriculture, healthcare, manufacturing and transport. Indian government could also provide a significant impetus to AI industry in India by adopting similar models. Such budgetary reforms in technology sector will attract further FDI from tech giants such as Nvidia, Google, Amazon, Microsoft etc. and will provide further impetus to the domestic companies, including notable AI-based startups in the tech segment such as Haptik, Yellow.ai, Arya.ai etc.
Prioritising railways sector under the Budget
It is anticipated that the Budget will aim at modernising railways sector through a wide array of reforms including increasing budget allocation for railways sector, focussing on high-speed trains, doubling of lines, boosting manufacturing of LHB coaches, enhancing safety-related enhancements, increasing investments in modern locomotives and rolling stock, and improving passenger amenities. The upcoming budget is also likely to foster initiatives in technology and leveraging AI to streamline processes and enhance efficiency in the railways segment. Such initiatives are likely to benefit key private players in railways segment such as Bharat Forge, IRCTC and Titagarh Wagons and may also attract further investments from key foreign investors such as Alstom, Siemens, Hitachi Rail, Kawasaki and SNCF. Such budgetary reforms can increase FDI in the railways sector from countries such as Japan, which can contribute to advanced technology collaboration, better resources and infrastructure in the sector. Lastly, targeted production-linked incentive schemes for railways sector can provide greater impetus to domestic manufacturing in this sector.
Conclusion
The upcoming Budget presents an opportunity for India to address critical economic challenges and set the stage for sustainable growth. As detailed above, under the upcoming Budget, it is anticipated that the Indian government will increase budget allocation in sectors such as agriculture, infrastructure, railways, technology and R&D, and introduce targeted reforms to boost manufacturing activities, foster economic resilience and competitiveness. Strategic and sustainable policy reforms coupled with targeted budget allocation under the upcoming budget will not only attract private players (including foreign investors) but also drive innovation and ensure equitable growth, enabling India to maintain its leadership as a global economic powerhouse.
Rudra Kumar Pandey is Partner and Deepti Pandey is Associate at Shardul Amarchand Mangaldas & Co. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.
