Budget 2026 expectations: Govt likely to pump in Rs 23,000 cr for local capital goods manufacturing

New Delhi: In the forthcoming Budget 2026-27, the Indian government may focus on increasing the pace of domestic manufacturing and auto sector. According to sources, the government may announce an incentive package of up to Rs 23,000 crore to speed up domestic manufacturing in the capital goods and auto sector. This will help in reducing the dependence on imports, as well as increasing the production of high-value capital goods in the country.

An ET report quoted sources as saying that the Rs 14,000-16,000 crore scheme is almost decided for the construction equipment sector, whereas a separate scheme of Rs 7,000 crore is being introduced to create a strong Global Value Chain (GVC) in the automobile sector. According to the officials associated with the case, the schemes are in the final stage of preparation and can be presented in the budget.

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According to the report, emphasis will be on indigenization of tunnel boring machines, high-end cranes and heavy machinery under the construction equipment package. At present, about half of the components of this sector are imported from China, Japan, South Korea and Germany. The restrictions imposed by China on the export of tunnel boring machines had earlier affected many infra projects in India.

The proposed GVC scheme for the auto sector plans to promote local manufacturing of modern components like ADAS, 360 degree cameras, sensors and telematics. Under the scheme, projects with at least 50% domestic value addition will be supported, which can also open up new export opportunities.

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In the new scheme, subsidies can also be provided for molds, power tools and prototyping centers used in auto parts manufacturing. Its objective is to make pre-production testing easier and to strengthen the supply chain through industry partnerships.

In last year's budget too, the government had given relief in the manufacture of EV and mobile batteries. The government had given customs duty exemption on 63 capital goods associated with it. This has given impetus to domestic lithium-ion battery manufacturing.