Union Budget 2026: Paving the Way for India’s Stronger Global Presence

India, Jan 31 : As India prepares for the Union Budget 2026-27, policymakers have a chance to leverage a favorable macroeconomic environment and recent trade breakthroughs to enhance the country’s global footprint. The Economic Survey 2025-26 points to strong growth momentum, controlled inflation, and a modest current account deficit of 0.8% of GDP, underpinned by a robust services surplus and healthy remittance inflows. These factors provide a solid foundation for a budget that can strategically focus on exports and domestic production.

The government’s recent landmark trade agreement with the European Union opens access to a market of over 500 million people, offering renewed opportunities for India’s labour intensive exports, particularly in apparel, textiles, and gems & jewellery. These sectors, however, were severely affected by punitive US tariffs last year, with nearly one-fourth of exporters reporting a shipment decline exceeding 50%, resulting in potential export losses of $5-6 billion. While market access is crucial, sustaining competitiveness requires strengthening domestic supply chains.

MSMEs, which form the backbone of India’s export industry, face high input costs, fragmented supply chains, and limited access to technology and finance. Existing incentive programs, such as the Production-Linked Incentive (PLI) schemes, largely focus on final products rather than upstream input industries. The upcoming Budget presents an opportunity to extend targeted support to MSMEs, domestic suppliers, and input sectors, including cluster-based production networks, intermediate goods, and specialised components. By addressing supply bottlenecks in yarn, fabrics, and other critical inputs, India can ensure that preferential market access through the India-EU agreement translates into real competitiveness and export growth.

Global experience underscores the importance of backward linkages. Countries such as Bangladesh, Thailand, and Vietnam have successfully nurtured upstream suppliers to create domestic value, skill development, and global competitiveness, rather than relying solely on export incentives. India can similarly position itself as a “China+3” manufacturing hub with minimal dependence on Chinese imports by promoting indigenisation and supporting domestic suppliers.

Defence preparedness also emerges as a key priority. With rising geopolitical tensions in West Asia and the neighbourhood, the Union Budget should allocate 20-25% higher resources for defence indigenisation, complementing industrial and technological self-reliance. Strengthening domestic supply chains in key sectors alongside defence capabilities will enable India to walk through the doors opened by preferential trade agreements with resilience and competitiveness.

While pursuing these strategic goals, the government must also keep the fiscal deficit on track toward FRBM targets amid rising bond yields and financing costs, despite the Reserve Bank of India’s rate cuts. In essence, Union Budget 2026 offers India a dual opportunity: to fortify domestic supply chains and MSME clusters, while leveraging trade agreements to cement a stronger position in global markets.