HSA Analyses Of Union Budget 2026–27 | Infrastructure, Energy And Strategic Sectors

Key takeaways

• The Union Budget 2026–27 follows an execution-led, capital-intensive growth model, consistent with the Economic Survey 2025–26, which highlights public capex as a catalyst for private investment, productivity gains and lower transaction costs, supported by macroeconomic stability and stronger financial sector health.
• Public capital expenditure of approximately ₹12.2 lakh crore anchors the growth strategy, positioning infrastructure as the principal driver of productivity, employment and regional integration, with emphasis on execution readiness and project bankability.
• Project risk mitigation is institutionalised, notably through the proposed Infrastructure Risk Guarantee Fund, aimed at providing credit enhancement during construction and early operational phases for PPP and greenfield projects.
• Transport and logistics receive approximately ₹5.98 lakh crore, prioritising multimodal connectivity, logistics cost reduction, high-speed rail, freight corridor expansion, inland waterways and regional connectivity.
• Urban and regional development is advanced through City Economic Regions (CERs), with proposed funding of approximately ₹5,000 crore per CER over five years for Tier-II and Tier-III cities, supported by corridor-led development and sustainable mobility.
• Renewable energy and grid modernisation allocations total approximately ₹32,914 crore, reflecting a system-level energy transition aligned with grid readiness and financing discipline. Grid strengthening is prioritised, including continued investment under Green Energy Corridor–III (approximately ₹600 crore) to improve transmission capacity and renewable evacuation.
• Solar and wind deployment and manufacturing receive targeted support, including ₹22,000 crore under PM Surya Ghar, ₹1,775 crore for solar parks and CPSU projects, ₹5,000 crore under PM-KUSUM, customs duty rationalisation for key inputs and continued support for wind manufacturing.
• Energy storage is recognised as core grid infrastructure, supported by a ₹1,000 crore VGF scheme for 8 GWh of grid-scale BESS by FY 2026–27, financial closure for 30 GWh under PSDF and earmarking of 10 GWh within the 50 GWh ACC PLI.
• Electric mobility receives targeted support, with ₹1,500 crore under PM E-DRIVE and ₹500 crore under PM-eBus Sewa for electric bus deployment and enabling infrastructure.
• Green hydrogen and green ammonia are positioned as strategic export and industrial assets, supported by 100 per cent tax exemptions for export-oriented units at Kandla (Gujarat) and Tuticorin (Tamil Nadu), and PLI support for advanced electrolyser technologies.
• Nuclear energy policy marks a structural inflection, with a ₹20,000 crore Nuclear Energy Mission targeting 100 GW by 2047 and five indigenously developed SMRs by 2033, supported by customs duty exemptions until September 2035 and legislative reforms enabling private participation.
• Carbon Capture, Utilisation and Storage (CCUS) is institutionalised, through a National CCUS Mission with an outlay of approximately ₹20,000 crore over five years and tradable Carbon Capture Credits.
• Defence expenditure increases to approximately ₹7.85 lakh crore, with emphasis on capital outlay, indigenisation, private sector participation and MSME integration across strategic manufacturing ecosystems.
• Manufacturing policy aligns with infrastructure and energy priorities, supporting critical minerals, rare earths, semiconductors, electronics, advanced batteries and clean energy equipment, including customs exemptions for mineral processing capital goods.
• Technology and digital infrastructure are treated as economic infrastructure, with tax holidays for cloud services using Indian data centres extending until 2047, safe harbour transfer pricing certainty and AI integration across sectors.
• Social infrastructure is framed as a productivity enabler, with focus on skilling, healthcare and education aligned to industrial corridors and employment outcomes.
• Capital markets and financial sector reforms focus on long-term capital mobilisation, through enhanced foreign portfolio investment limits, asset monetisation via InvITs and REITs, restructuring of infrastructure finance institutions and banking and NBFC reforms.
• Direct tax policy prioritises certainty and continuity, confirming implementation of the new Income-tax Act from 1 April 2026, stable corporate tax rates and targeted incentives for manufacturing, clean energy and R&D.
• Indirect tax policy functions as a supply-chain tool, with customs and GST rationalisation for batteries, renewable equipment, electrolysers and critical minerals to support domestic value addition.
• Overall, the Budget reflects a shift from allocation-led policymaking to executionfocused governance, combining public investment, market-based instruments and institutional reform, with outcomes dependent on regulatory clarity and coordinated implementation.

INTRODUCTION

The Union Budget 2026–27 has been presented at a time of macroeconomic stability, improved financial sector health and sustained public investment-led growth. The Budget builds upon reform and institutional frameworks established over the past decade and reflects a conscious policy choice to prioritise long-term capital formation, execution readiness and resilience in the face of volatile global economic and geopolitical dynamics.

The Budget is explicitly framed around three principal obligations (Kartavyas) of the Government:

1. accelerating and sustaining economic growth by enhancing productivity, competitiveness and resilience;
2. fulfilling the aspirations of citizens through capacity building, skilling and employment generation; and
3. advancing the vision of Sabka Saath, Sabka Vikas by ensuring equitable access to infrastructure, resources and economic opportunities across regions and sectors.

In line with these objectives, the Budget places strong emphasis on infrastructure development, energy security and transition, defence preparedness, manufacturingled growth and technology enablement, supported by institutional reforms, riskmitigation mechanisms and market-based financing structures. This report analyses the Union Budget 2026–27 primarily through the lens of infrastructure, energy and defence, while also examining technology, battery storage and social infrastructure as critical enablers of India's medium to long-term growth trajectory.

ECONOMIC SURVEY 2025-26: MACROECONOMIC CONTEXT AND POLICY DIRECTION

The Economic Survey 2025–26 provides the analytical foundation for the Union Budget 2026–27. The Survey highlights the role of public capital expenditure as a catalyst for private investment, noting that government-led infrastructure spending has generated strong multiplier effects, improved logistics efficiency and reduced transaction costs. Sustaining high growth, the Survey argues, will require predictable policy frameworks, effective risk-sharing mechanisms and enhanced execution capacity.

For the Energy sector, the Survey adopts a pragmatic and balanced approach, recognising renewable energy, energy storage, green hydrogen, nuclear power and transitional technologies as complementary components of a resilient energy system. While reaffirming India's commitment to climate goals, the Survey cautions against disorderly transitions and stresses the importance of sequencing, system readiness and adequate financing.

For manufacturing and defence, the Survey underscores domestic value addition, supply-chain resilience and strategic autonomy. Greater involvement of private industry, startups and MSMEs in defence production is viewed as essential for innovation, scale and rapid technology absorption. These themes are reflected in the structure and priorities of the Union Budget 2026–27.

INFRASTRUCTURE DEVELOPMENT AND PUBLIC CAPITAL EXPENDITURE

PUBLIC CAPITAL EXPENDITURE AND INFRASTRUCTURE STRATEGY

Public capital expenditure remains the cornerstone of the Government's growth strategy. For FY 2026–27, capital expenditure has been budgeted at approximately ₹12.2 lakh crore, continuing the sustained upward trajectory of recent years. This reflects a deliberate shift towards asset creation-led growth, with infrastructure positioned as the primary driver of productivity, employment generation and private sector participation.

A key feature of this year's infrastructure strategy is the emphasis on execution readiness and bankability. Accelerated digital land mapping, improved spatial data systems and streamlined approval processes are expected to reduce project delays, enhance Public Private Partnerships' (PPP) viability and improve financial closure timelines. These measures are complemented by reforms in customs, trade facilitation and contract management.

INFRASTRUCTURE RISK GUARANTEE FUND

A significant institutional reform announced in the Budget is the proposal to establish an Infrastructure Risk Guarantee Fund. The Fund is intended to provide targeted credit enhancement and risk-mitigation support to infrastructure projects, particularly during construction and early operational phases. By offering partial guarantees against risks such as payment delays or defaults by contracting authorities, the Fund seeks to improve project bankability, lower borrowing costs in long-term private capital, especially for PPP and greenfield projects.

URBAN INFRASTRUCTURE AND CITY ECONOMIC REGIONS

The Budget places renewed focus on decentralised urban development through the creation of City Economic Regions (CERs), particularly in Tier-II and Tier-III cities and temple towns. An allocation of approximately ₹5,000 crore per CER over a five-year period has been proposed to support modern infrastructure, basic amenities and economic activity. Model documentation and implementation frameworks developed under the Smart Cities Mission may serve as useful references for CER rollout.

INDUSTRIAL CORRIDORS AND REGIONAL CONNECTIVITY

The Budget advances regional development through proposals for an integrated East Coast Industrial Corridor, with a strategically connected node at Durgapur, West Bengal. The creation of tourism destinations across the five Purvodaya States (Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh) and deployment of 4,000 ebuses underscores the focus on sustainable mobility and regional economic integration.

The contractual and institutional frameworks of the Delhi–Mumbai Industrial Corridor (DMIC), and their replication for corridors such as the Amritsar–Kolkata Industrial Corridor (AKIC) and the Chennai–Bengaluru Industrial Corridor (CBIC), provide a tested foundation for implementing large-scale corridor projects.

TRANSPORT AND LOGISTICS INFRASTRUCTURE

The transport and logistics sector has received an allocation of approximately ₹5.98 lakh crore in FY 2026–27. The Budget continues to prioritise reduction of logistics costs, improvement of multimodal connectivity and promotion of environmentally sustainable transport systems.

The proposal to develop seven high-speed rail corridors as growth connectors between major economic centres is expected to significantly reduce travel time, enhance regional integration and support low-carbon passenger mobility. The seven proposed high-speed rail corridors will connect key economic and industrial centres, including Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad– Chennai, Chennai–Bengaluru, Delhi–Varanasi and Varanasi–Siliguri.

On the freight side, initiatives such as a new east–west Dedicated Freight Corridor, operationalisation of 20 National Waterways, development of ship repair ecosystems and a Coastal Cargo Promotion Scheme support modal shift and efficiency gains. A Seaplane Viability Gap Funding (VGF) Scheme further enhances regional connectivity and indigenous manufacturing.

To support the expansion of inland waterways, the Budget also proposes the establishment of specialised training institutes as regional centres of excellence. These institutes are intended to develop skilled manpower for operations, maintenance, repair and logistics services associated with waterways and allied infrastructure.

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