{"id":18787,"date":"2026-02-04T12:58:59","date_gmt":"2026-02-04T07:28:59","guid":{"rendered":"https:\/\/theeducationoverview.in\/?p=18787"},"modified":"2026-02-04T12:58:59","modified_gmt":"2026-02-04T07:28:59","slug":"union-budget-fy-2026-27-strengthening-capital-goods-sector","status":"publish","type":"post","link":"https:\/\/theeducationoverview.in\/?p=18787","title":{"rendered":"Union Budget FY 2026-27: Strengthening Capital Goods Sector"},"content":{"rendered":"

Union Budget FY 2026-27: Strengthening Capital Goods Sector<\/strong><\/span><\/h2>\n

Posted On: 03 FEB 2026 2:45PM by PIB Delhi<\/strong><\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0 Key Takeaways<\/strong><\/span><\/p>\n\n\n\n
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  • Government capital outlay rose 4.2\u00d7\u00a0from \u20b92.63 lakh crore in FY18 to \u20b911.21 lakh crore in FY26 (BE)<\/strong><\/span><\/li>\n
  • Union Budget FY 2026-27 announces public capital expenditure at \u20b912.2 lakh crore<\/strong><\/span><\/li>\n
  • Capital goods under IIP grew 8.1% YoY in December 2025<\/strong><\/span><\/li>\n
  • \u20b910,000 crore Container Manufacturing Scheme\u00a0and\u00a0new CIE & Hi-Tech Tool Room\u00a0initiatives announced<\/strong><\/span><\/li>\n
  • Five-year tax exemptions\u00a0for toll and electronics manufacturing, along with\u00a0customs duty exemptions\u00a0for capital goods in various sectors<\/strong><\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    \n\u00a0<\/strong><\/span><\/p>\n

    Introduction<\/strong><\/span><\/p>\n

    India\u2019s capital goods sector is a strategic cornerstone\u00a0in India\u2019s industrial policy, supported by government infrastructure investments and a strong manufacturing push. The sector is a critical driver of infrastructure expansion, industrial capacity creation, and technological advancement across the economy.<\/strong><\/span><\/p>\n

    With a view to\u00a0building high-precision manufacturing capacity, promoting technologically advanced equipment, and creating globally competitive industrial ecosystems, the capital goods sector has remained a key focus of government policy.\u00a0Given its critical importance to the country\u2019s economic development, the sector\u2019s expansion has been consistently supported through targeted incentives and strengthened regulatory frameworks.\u00a0The Union Budget 2026-27 further reinforces\u00a0this direction, emphasising the need to support a rapidly expanding economy characterised by rising trade volumes and increasing capital requirements.<\/strong><\/span><\/p>\n

    Guided by the framework of three\u00a0kartavyas<\/em>, the Union Budget identifies its first priority as accelerating and sustaining economic growth by proposing interventions in various key areas.\u00a0Capital goods development remains a key component of the strategy, with continued emphasis on sector-specific schemes and sustained capital expenditure\u00a0aimed at strengthening domestic manufacturing capabilities and infrastructure creation.<\/strong><\/span><\/p>\n

    The proposed measures seek to boost investment, enhance domestic capacity, and support long-term economic growth in the\u00a0Capital Goods sector.<\/strong><\/span><\/p>\n\n\n\n
    Capital Goods<\/strong><\/span><\/p>\n

    \u201cCapital Goods\u201d\u00a0means any plant, machinery, equipment or accessories\u00a0required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological up-gradation or expansion.<\/strong><\/span><\/p>\n

    Capital goods may be used in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Capital Goods Sector Strengthening India\u2019s Growth Engine<\/strong><\/span><\/p>\n

    The capital goods sector plays a vital role in India\u2019s economic strategy by supporting large-scale manufacturing and infrastructure projects. Driven by rapid urbanization, ongoing infrastructure investments, and strong policy support, the sector is set to foster long-term industrial growth and strengthen India\u2019s standing in the global economy.<\/strong><\/span><\/p>\n

    Capital goods are widely regarded as foundational to strengthening domestic manufacturing capacity.\u00a0The sector also exerts a strong multiplier effect on the economy, significantly influencing\u00a0growth and employment across user industries\u00a0by supplying\u00a0critical inputs such as machinery and equipment\u00a0to the entire manufacturing ecosystem, as well as to other related sectors.<\/strong><\/span><\/p>\n

    Role of Capital Goods in Industrial Growth<\/strong><\/span><\/p>\n

    India\u2019s industrial growth momentum in FY26 has become more broad-based, with manufacturing emerging as a major driver and gaining further pace during the year. The Economic Survey 2025-26 notes that\u00a0manufacturing GVA growth accelerated in FY26, reaching 7.72% in Q1 and 9.13% in Q2,\u00a0supported largely by ongoing structural transformations within the sector.<\/strong><\/span><\/p>\n

    Further, the\u00a0Index of Industrial Production (IIP) registered a growth of 7.8% in December 2025, supported by broad-based expansion in manufacturing (8.1%) and continued growth in mining (6.8%). A key contributor to this performance was the\u00a0capital goods segment under the use-based classification, which recorded an 8.1% year-on-year increase\u00a0during the same period. \u00a0<\/strong><\/span><\/p>\n

    The\u00a0export performance of the capital goods\u00a0sector since FY22 has been closely linked to the\u00a0expansion of domestic production capacity and the strengthening of investment activity\u00a0within the economy.\u00a0Exports recorded steady growth, increasing to \u20b933,356 crore in FY25 from \u20b931,621 crore in FY24. Similarly,\u00a0production also witnessed a notable rise, reaching \u20b92,05,194 crore in FY25 compared with \u20b91,85,858 crore in the previous financial year. On the import front,\u00a0merchandise imports rose\u00a0by 6.3% year-on-year in FY25 to reach USD 721.2 billion, driven largely by\u00a0stronger demand for critical intermediate goods and capital equipment, reflecting resilient domestic demand.\u00a0\u00a0Further,\u00a0capital goods imports expanded by 6.6% in Q1 FY26 and further accelerated to 9.2% in Q2 FY26. The overall dual trends highlights\u00a0sustained domestic investment activity\u00a0as well as reliance on technologically advanced machinery sourced from abroad.<\/strong><\/span><\/p>\n

    Also, High-frequency indicators suggest healthy investment activity in capital goods. The overall growth in the sector indicates rising industrial activity, reflecting improved performance and expanding economic momentum.<\/strong><\/span><\/p>\n\n\n\n\n\n\n\n\n
    High-frequency indicators signalling firming investment momentum (YoY growth, %)<\/strong><\/span><\/td>\n<\/tr>\n
    Indicators<\/strong><\/span><\/td>\nQ1 FY26<\/strong><\/span><\/td>\nQ2 FY26<\/strong><\/span><\/td>\nQ3 FY26<\/strong><\/span><\/td>\nMonthly Avg YoY Growth (FY16-FY20)<\/strong><\/span><\/td>\n<\/tr>\n
    Capital Goods Imports<\/strong><\/span><\/td>\n6.6<\/strong><\/span><\/td>\n9.2<\/strong><\/span><\/td>\n13.4<\/strong><\/span><\/td>\n7.1<\/strong><\/span><\/td>\n<\/tr>\n
    Capacity Utilisation (in %)<\/strong><\/span><\/td>\n74.1<\/strong><\/span><\/td>\n74.8<\/strong><\/span><\/td>\nNA<\/strong><\/span><\/td>\n72.9<\/strong><\/span><\/td>\n<\/tr>\n
    Source: Economic Survey 2025-26<\/strong><\/span><\/td>\n<\/tr>\n
    What are Capital Goods Imports?<\/strong><\/span><\/p>\n

    Capital goods imports are defined as the aggregate of imports of electric machinery and equipment; base metals excluding iron and steel; industrial machinery, including machinery for dairy and allied uses; machine tools; other construction machinery; project goods; and transport equipment.<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Government Capex has continued to rise steadily since FY22<\/strong><\/span><\/p>\n

    The Government\u2019s capital expenditure between FY19 and FY22 spending grew by about 92%, increasing from \u20b93.07 lakh crore to \u20b95.92 lakh crore.\u00a0This upward trajectory has continued in subsequent fiscal years, supporting the broader objective of expanding high-quality infrastructure nationwide.<\/strong><\/span><\/p>\n

    Additionally,\u00a0the government\u2019s capital outlay has further increased by nearly 4.2 times, from \u20b92.63 lakh crore in FY18 to a budgeted \u20b911.21 lakh crore in FY26(BE), whereas effective public capital expenditure for FY26 (BE) stands at \u20b915.48 lakh crore.<\/strong><\/span><\/p>\n

    Sectoral Impact of Capital Goods Expansion<\/strong><\/span><\/p>\n

    India\u2019s expanding\u00a0capital goods sector is supporting strong growth across several industrial segments.\u00a0It is experiencing significant attention because of its\u00a0pivotal role in advancing industrial activity and overall economic development.\u00a0The sector also encompasses other industries such as, machinery, and construction, which are essential for the country’s infrastructure development. For instance, the electrical equipment segment has consistently recorded double-digit output growth in power equipment, driven by strong demand in both domestic and export markets.<\/strong><\/span><\/p>\n

    Together, these trends highlights that\u00a0India\u2019s capital goods sector is emerging as a central pillar of its investment-led growth strategy, reinforcing industrial capacity, accelerating infrastructure creation, and sustaining the country\u2019s long-term economic momentum.<\/strong><\/span><\/p>\n

    Budget Focus on Capital Goods: A Push for the Economy<\/strong><\/span><\/p>\n

    The\u00a0Union Budget 2026\u201327 underscores the capital goods sector as a key driver of India\u2019s growth and industrial transformation.\u00a0It prioritises expansion of manufacturing capacities in seven strategic and frontier sectors, supported by focused interventions for capital goods. The\u00a0Budget strengthens the sector\u2019s role across manufacturing, and the energy transition to enhance productivity and quality standards. These measures aim to reinforce domestic capacity while supporting India\u2019s deeper integration with global markets.<\/strong><\/span><\/p>\n

    Public Capital Expenditure: Infrastructure-led Growth<\/strong><\/span><\/p>\n

    Reinforcing the role of public investment as a key driver of economic growth, the Budget delivers a strong push to infrastructure development.\u00a0Public capital expenditure is proposed to be increased by ~9% from FY 2025-26\u00a0(Budget Estimates)\u00a0to \u20b912.2 lakh crore in FY 2026\u201327. \u00a0Public capex has increased manifold from \u20b92 lakh crore in FY 2014-15. This underscores the continued emphasis on infrastructure-led growth, crowding-in of private investment and enhancement of productive capacity across the economy. \u00a0<\/strong><\/span><\/p>\n

    Strengthening Manufacturing through Capital Goods Development<\/strong><\/span><\/p>\n

    Recognising the strong capital goods capability underpins productivity and quality across industries, several targeted interventions have been proposed to build domestic capacity.<\/strong><\/span><\/p>\n

      \n
    • To enhance high-precision manufacturing,\u00a0Hi-Tech Tool Rooms are proposed to be established by CPSEs (Central Public Service Enterprise) at two locations. These facilities will function as digitally enabled, automated service bureaus, providing localised design, testing and manufacturing of high-precision components at lower cost.<\/strong><\/span><\/li>\n
    • Further, a\u00a0Scheme for Enhancement of Construction and Infrastructure Equipment (CIE)\u00a0is proposed to strengthen domestic manufacturing of high-value and technologically advanced construction and infrastructure equipment. This includes a wide range of equipment, from lifts used in multi-storey buildings and fire-fighting equipment to tunnel-boring machinery for metro projects and high-altitude roads.<\/strong><\/span><\/li>\n
    • To support logistics and trade infrastructure, the Budget also proposes a\u00a0Scheme for Container Manufacturing, aimed at creating a globally competitive container manufacturing ecosystem. The scheme has a proposed\u00a0budgetary allocation of \u20b910,000 crore over a five-year period.<\/strong><\/span><\/li>\n<\/ul>\n

      Support to Toll Manufacturing and Electronics Manufacturing<\/strong><\/span><\/p>\n

      To provide a fillip to toll manufacturing in India, the Budget proposes an\u00a0income tax exemption for a period of five years\u00a0to any non-resident entity that provides capital goods, equipment or tooling to a toll manufacturer operating in a bonded zone.<\/strong><\/span><\/p>\n

      In addition, specific support has been extended to toll manufacturing engaged in electronics manufacturing. Under the proposal, a\u00a0tax exemption is provided to any foreign company supplying capital goods, equipment or tooling to a toll manufacturer located in a bonded zone and engaged in manufacturing electronic goods. The exemption is proposed for\u00a0five tax years beginning 1st April, 2026.<\/strong><\/span><\/p>\n

      The measure aims to reduce the capital investment burden on Indian contract manufacturers, thereby lowering production costs and promoting electronics manufacturing in India. The proposed amendment is applicable up to\u00a0tax year 2030\u201331.<\/strong><\/span><\/p>\n

      Energy Transition and Critical Minerals: Capital Goods Facilitation<\/strong><\/span><\/p>\n

      In support of energy transition and energy security, the Budget proposes to\u00a0extend the basic customs duty exemption on capital goods\u00a0used for manufacturing Lithium-Ion cells for batteries to those used for manufacturing Lithium-Ion cells for\u00a0battery energy storage systems\u00a0as well.<\/strong><\/span><\/p>\n

      Further, the\u00a0basic customs duty on the import of capital goods required for processing critical minerals in India is proposed to be exempted, with a view to strengthening domestic value chains for critical minerals.<\/strong><\/span><\/p>\n

      Recent Policy Support Strengthening Capital Goods Sector<\/strong><\/span><\/p>\n

      The Government\u2019s policy support for the capital goods sector has expanded significantly, with multiple schemes aimed at improving domestic capability and aligning with India\u2019s investment-led growth phase. Some of the recent policy support includes:<\/strong><\/span><\/p>\n

      Production Linked Incentive (PLI) Schemes<\/strong><\/span><\/p>\n

      The core objective of the PLI Scheme is to\u00a0attract investments\u00a0in\u00a0key sectors,\u00a0facilitate the\u00a0adoption of cutting-edge technologies, enhance\u00a0operational efficiency,\u00a0and achieve\u00a0economies of size and scale, thereby\u00a0strengthening the global competitiveness of Indian manufacturers. The\u00a0Economic Survey\u00a02025-26\u00a0highlights key sectoral gains such as:<\/strong><\/span><\/p>\n

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      • PLI-Auto Scheme\u00a0promotes manufacturing of advanced automotive technology vehicles and components. It attracted\u00a0\u20b935,657 crore in investments\u00a0and\u00a0created 48,974 jobs till September 2025.<\/strong><\/span><\/li>\n<\/ul>\n

        \n

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        • PLI-Advanced Chemistry Cell (ACC) Scheme\u00a0aims at localising\u00a0battery manufacturing,\u00a0with 40 GWh capacity awarded thus,\u00a0strengthening India\u2019s EV ecosystem.<\/strong><\/span><\/li>\n<\/ul>\n\n\n\n
           <\/p>\n

          Rising Impact of PLI Schemes in Strengthening India\u2019s Manufacturing Sector<\/strong><\/span><\/p>\n

           <\/p>\n

          According to the\u00a0Economic Survey 2025-2026, an actual investment of over \u20b92.0 lakh crore has been realised till September 2025, leading to\u00a0incremental production\/sales of over \u20b918.70 lakh crore\u00a0and\u00a0employment generation of over 12.60 lakhs (direct and indirect).<\/strong><\/span><\/p>\n

          Additionally,\u00a0cumulative incentives of \u20b923,946 crore have been disbursed across 12 sectors, with 806 applications approved\u00a0across all 14 sectors. The PLI Schemes have witnessed\u00a0exports surpassing \u20b98.20 lakh crore, driven by key sectors under the Scheme.<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

          \n

          Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector<\/strong><\/span><\/p>\n

          The Government is undertaking focused measures to strengthen the competitiveness of the capital goods sector through\u00a0Phase II of the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector, introduced in 2022. The scheme covers\u00a0six major components, including technology identification through innovation portals,\u00a0setting up Advanced Centres of Excellence (CoEs), establishing\u00a0Common Engineering Facility Centres (CEFCs), upgrading testing and certification infrastructure, and implementing comprehensive skill development initiatives.<\/strong><\/span><\/p>\n

          As of November 2025, 29 projects have been approved under Phase II, involving a total project cost of \u20b9891.37 crore, with a government contribution of \u20b9714.64 crore. Technologies developed under the scheme have also captured markets in countries such as France, Belgium, and Qatar, demonstrating the sector\u2019s improving global competitiveness.<\/strong><\/span><\/p>\n\n\n\n
          The\u00a0Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector\u00a0is a demand-driven scheme under which industry, in partnership with eminent academic and research institutions, proposes projects for government funding, with the objective of fostering long-term industry\u2013academia collaboration for critical R&D.<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

          \n

          Conclusion<\/strong><\/span><\/p>\n

          Building on its\u00a0kartavya<\/em>\u00a0and the government\u2019s resolve to drive comprehensive economic growth and development, the capital goods sector plays a significant role in advancing this agenda.\u00a0With existing policy support and new measures introduced in the Union Budget 2026-27, the sector is well positioned to make a strong contribution to India\u2019s economic development in the coming years.<\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

          Union Budget FY 2026-27: Strengthening Capital Goods Sector Posted On: 03 FEB 2026 2:45PM by PIB Delhi \u00a0\u00a0\u00a0\u00a0\u00a0 Key Takeaways     Government capital outlay rose 4.2\u00d7\u00a0from \u20b92.63 lakh crore in FY18 to \u20b911.21 lakh crore in FY26 (BE) Union Budget FY 2026-27 announces public capital expenditure at \u20b912.2 lakh crore Capital goods under IIP …<\/p>\n","protected":false},"author":2,"featured_media":18788,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-18787","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-education-news"],"_links":{"self":[{"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/posts\/18787","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18787"}],"version-history":[{"count":1,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/posts\/18787\/revisions"}],"predecessor-version":[{"id":18789,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/posts\/18787\/revisions\/18789"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=\/wp\/v2\/media\/18788"}],"wp:attachment":[{"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18787"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18787"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/theeducationoverview.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18787"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}