Budget 2026: Expectations for the Manufacturing Sector - particularly the Diamond Value Chain
January 21, 2026 · Budgets
As we approach the Union Budget 2026, the manufacturing sector anticipates significant reforms in PLI schemes and customs duties.
As the Government of India
prepares to present the Union Budget 2026-27 on February 1, 2026 ,
policymakers are under pressure to balance fiscal prudence with growth
imperatives amid global economic volatility, rising protectionism and shifting
trade dynamics. India’s manufacturing sector stands at a pivotal
crossroads as it seeks policy stability and incentives to catalyse investment,
adoption of advanced technologies and export competitiveness. At the same time,
the gems and jewellery industry, particularly the diamond value chain, is seeking targeted reforms to strengthen both domestic demand and
international market share.
Manufacturing
Sector: Priorities and Expectations
1. Tax
Rationalisation and Regulatory Simplification
Manufacturers are urging the
government to offer tax relief measures that reduce operational costs
and increase competitiveness. Calls include simplification of GST compliance,
lower effective tax rates for capital investments, and rationalisation of
customs duties on intermediate goods that feed key industrial value chains.
Such measures are expected to improve ease of doing business and help unlock
investments into new manufacturing capacities.
2. Continuation
and Expansion of PLI and Sectoral Incentives
India’s Production-Linked
Incentive (PLI) schemes have been central to the government’s strategy for
import substitution and export promotion. Stakeholders expect:
Extension of existing PLIs beyond their
scheduled sunset in select sectors
Introduction of new PLIs where gaps
persist (eg, textile machinery, critical components)
Broader coverage of high-value
manufacturing categories
PLI schemes for electronics and
auto components have driven significant investment and job creation; similar
support in other sectors could deepen domestic value addition.
3. Technology
Upgradation and Skill Development
Industry leaders are advocating
budgetary allocations for:
R&D incentives to accelerate automation, AI integration
and adoption of Industry 4.0 technologies
Targeted skill development programs
aligned with manufacturing needs
Support for MSMEs to adopt quality
improvement and digital tools
This is seen as critical to
enhance productivity and global competitiveness in high-precision
manufacturing.
4. Export
Support and Access to Capital
With global trade tensions and
tariff barriers rising, especially against key export markets, exporters within
manufacturing want:
Faster GST refunds
Incentives for logistics cost
reduction
Interest subvention schemes
Easier access to export finance and
working capital facilities
Such measures would help offset
pressures from external headwinds and support net export growth.
Diamond and
Gems Sector: Strategic Expectations
The gems and jewellery
industry , encompassing natural and lab-grown diamonds, is one of India’s
most significant contributors to merchandise exports and employment. Ahead of
Budget 2026, stakeholders have articulated a clear wishlist anchored on cost
rationalisation, competitiveness and structural reforms.
1. Duty and
Tax Rationalisation
Key recommendations from
industry bodies include:
Reduction in import duties on cut and polished diamonds and
coloured gemstones (currently at higher rates) to improve exporter margins
and global competitiveness.
Abolition or reduction of duty on rough
gemstones that
feed the manufacturing ecosystem.
Rationalisation of GST on finished
jewellery products ,
potentially lowering the effective rate to support both domestic demand
and wider formalisation of the sector.
Reducing effective tax burdens
would strengthen India’s positioning against other jewellery manufacturing hubs
and support market expansion.
2. Procedural
Reforms in Customs and GST
Industry leaders want reforms to
customs and GST procedures to:
Enable risk-based customs clearance
and faster digital processing
Enhance AI-enabled digital appraisal
systems to streamline cross-border trade
Simplify and modernise compliance
workflows
Such changes would lower
logistics costs, shorten turnaround times and improve reliability for
exporters.
3. Boosting
the Lab-Grown Diamond Ecosystem
The lab-grown diamond (LGD)
segment is emerging as a strategic growth area. Expectations include:
GST relief or a distinct rate for LGD jewellery to stimulate domestic
adoption
Continued duty exemptions on imported
LGD seeds
Support for quality standards to
strengthen competitiveness in global markets
These measures are seen as
essential for India to lead next-generation fine jewellery trends and build
high value-added manufacturing.
4. Export
Hub and Trade Facilitation Support
India’s free trade agreement
with the European Union holds promise for doubling gems and jewellery trade
to roughly US$10 billion over the next three years, thanks to zero-duty market
access. Stakeholders expect policy support to translate this into real trade
gains by simplifying trade procedures and enhancing market access mechanisms.
Forward-Looking
Policy Impacts
If Budget 2026 reflects these
expectations, the following medium-term outcomes could emerge:
Enhanced competitiveness of Indian manufacturing and export
sectors globally
Job creation driven by scale-up in manufacturing and
value-added diamond segment roles
Structural reforms that build resilience against external
trade shocks
Diversification of export markets through deeper integration with FTAs and
reduced trade barriers
However, given fiscal
constraints and global economic uncertainties, the budget is likely to
prioritise simplification and regulatory clarity over large headline
stimulus packages, while maintaining a focus on long-term growth foundations.
Conclusion
Budget 2026 presents a strategic
opportunity to drive India’s manufacturing resurgence and elevate its global
standing in the diamond and gems value chains. By focusing on tax
rationalisation, ease of doing business reforms, targeted incentives and export
facilitation, policymakers can create an environment that boosts investment
confidence and supports sustainable growth. Both sectors are key to India’s
long-term economic vision and their performance in the next fiscal year will be
a bellwether for the broader industrial ecosystem.
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