India faced global headwinds in 2025 but belied fears that America’s 50% tariffs would hurt its economy. The resilience of the Indian economy had a lot to do with the government’s reformist measures. As Prime Minister Narendra Modi said recently, “2025 will be remembered as a year when India treated reforms as a continuous national mission.” Budget 2026-27 can give a fillip to the mission.

India needs to strengthen the domestic levers of growth. This can be done by prioritising growth-enhancing productive capital expenditure and social sector spending, while maintaining the current fiscal consolidation glide path and keeping debt risks contained.

Continue the focus on defence

First, the government should continue the focus on defence, with higher expenditure on the capex. The share of capital outlay in defence should be enhanced to 30% from the budgetary estimate for 2025-26 of 26.4%. The budgetary allocation for the Defence Research and Development Organisation should also be increased by at least ₹10,000 crore. Defence industrial corridors in Uttar Pradesh and Tamil Nadu have made strides in promoting defence indigenisation and raising defence production. The government should consider establishing an eastern India defence industrial corridor.

Second, private enterprises have played a key role in augmenting defence exports in recent times, contributing nearly 65% of total defence exports in 2024-25. There can be a further boost by setting up a defence export promotion council for enhanced coordination with armed services, their foreign directorates, defence public sector undertakings, private manufacturers, the Ministry of External Affairs, Indian embassies, the Ministry of Defence, and communicate with foreign governments and buyers. This will also help achieve the target of defence exports set at ₹50,000 crore by 2028-29.

Third, a transition toward clean energy, advanced manufacturing, electric mobility, semiconductors and strategic technologies is driving a demand for critical minerals. The National Critical Mineral Mission (NCMM), approved in early 2025 provides a strong strategic foundation to secure these materials. This can be supplemented by a dedicated critical minerals tailings recovery programme under the NCMM, with the purpose of treating tailings recovery. The government should also consider offering dedicated financing for this.

Fourth, exports need a significant policy thrust in the current global environment. The present budgetary allocation for the Remission of Duties and Taxes on Exported Products Scheme, at around ₹18,233 crore needs to be raised significantly to make the exports more competitive.

Fifth, India has emerged as the world’s leading hub for Global Capability Centres, but its transfer pricing (TP) framework has yet to evolve. The government may consider issuing clear guidance on acceptable TP models for different categories.

Sixth, to accelerate drone adoption, global competitiveness, and exports, the government should consider catalysing scale through targeted financial support, including enhancing the production linked incentive outlay from ₹120 crore to ₹1,000 crore and setting up a ₹1,000 crore drone research and development fund.

Finance credit and tax disputes

Seventh, deepening the corporate bond markets is critical for diversification of finance credit beyond the banking system. The government could consider lowering the qualifying borrowing threshold and include listed and unlisted corporates to widen the issuer base and stimulate bond supply, encourage large corporations to diversify borrowings through market issuances, increase investment caps for insurance companies beyond the current 25% limit and revise the ‘Approved Investment’ threshold from AA to AA-, enabling prudent allocation into high-quality but lower-rated issuers. It could also permit provident funds to invest in non-convertible debentures issued by infrastructure investment trusts and real estate investment trusts, enabling long-term capital to support infrastructure aggregation vehicles.

Eighth, measures to address disputes pendency need to be prioritised. The first appellate level in direct tax disputes, the office of the Commissioner of Income Tax (Appeals) or CIT(A), is facing severe pendency. There is a need to prioritise high-pitched assessments, cases with complete submissions, cases covered by jurisdictional High Court or Supreme Court rulings, appeals older than five years, and matters that are chronologically the oldest. The need is a dual-track disposal system: a fast-track for simple or low-value matters and a detailed track for complex or high-value matters. Also, around 40% vacancies at the CIT(A) level need to be filled.

Ninth, newly incorporated companies (even for new companies formed by established Authorised Economic Operator or AEO-accredited groups) are ineligible for certification by the AEO. Removing this restriction for AEO-accredited groups will help enhance trade efficiency and facilitate greater trade.

Tenth, the reforms related to customs tariffs introduced in the last Budget must continue. Further reduction in the customs tariffs slabs can help streamline the duty structure, address the issue of inverted duties and benefit trade. Import duties should be calibrated across the value chain to support domestic manufacturing competitiveness and address the inverted duties.

Ensure competitiveness

Budget 2026-27 must focus on sustaining India’s growth momentum by deepening competitiveness across sectors and strengthening the domestic engines of expansion. By combining fiscal prudence with unlocking growth potential across industries, ensuring policy certainty and addressing structural bottlenecks, the Budget can crowd in private investment and enhance India’s global competitiveness.

Jyoti Vij is Director General, Federation of Indian Chambers of Commerce & Industry (FICCI)

Published – January 17, 2026 12:08 am IST

A view of the toy shop.
| Photo Credit: K. Bhagya Prakash

The government’s steps such as mandatory quality norms and increase in customs duties have significantly helped the domestic toy players to boost exports and reduce dependence on Chinese imports, Economic Survey said on July 22.

It said that India’s emergence as a toy exporting nation can also be attributed to its integration into the global value chain and zero-duty market access for domestically manufactured toys in critical countries such as the UAE and Australia.

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The industry has long faced challenges in the global trade landscape, consistently being a net importer of toys for many years.

“Rising exports, coupled with declining imports, transformed India from a deficit to a surplus nation in the trade of toys,” it said.

For over a decade, India was heavily relied on China for around 76 per cent of its toy imports.

“India’s import bill for toys from China dropped from USD 214 million in FY’13 to USD 41.6 million in FY’24, leading to a decline in China’s share in India’s toy imports from 94 per cent in FY’13 to 64 per cent in FY’24, indicating India’s competitiveness in the international toy market,” the Survey said.

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During the period from 2014 to 2020, focused efforts by the government also resulted in the number of manufacturing units doubling.

The measures taken by the government for the toy industry include the formulation of a comprehensive National Action Plan for Toys with 21 specific action points, an increase in basic customs duty on toys, sample testing of each import consignment to curb sub-standard imports, issuance of a Quality Control Order for toys, and support through cluster-based approaches.

Read the full Economic Survey

The government is considering a production linked incentive (PLI) scheme for the sector to further boost the domestic manufacturing.

Toy Association of India senior vice-president and CEO of Noida-based Little Genius Toys Pvt Ltd Naresh Kumar Gautam said that the country’s exports from the sector will further grow in the coming years.

The Survey also said that India has transitioned from an arms importer and found a place in the list of the top 25 arms exporter nations.

The defence industry, including the private sector and Defence Public Sector Undertakings (DPSUs), has made efforts to achieve the highest-ever defence exports.

There has been a rise in the number of export authorisations issued to defence exporters. From 1,414 export authorisations in FY23, the number has increased to 1,507 in FY24.

About 100 domestic companies are exporting a wide range of defence products and equipment such as aircraft like Dornier-228, artillery guns, Brahmos missiles, PINAKA rockets and launchers, radars, simulators, and armoured vehicles.

To give a push to defence exports, the government has taken several policy initiatives over the past ten years.

Export procedures have been simplified and made industry-friendly, with end-to-end online export authorisation curtailing delays and facilitating ease of doing business, the latest Economic Survey said.

On smartphones, it said that India’s domestic production and exports of smartphones have been increasing steadily, with significant changes achieved, especially since the launch of the PLI scheme in 2020.

India also became the world’s sixth-largest smartphone exporter in 2022, from 23rd in 2014.

These exports rose by 42 per cent to USD 15.6 billion in 2023-24.