Decoding Union Budget FY'27: What it means for India's commodity markets?

• Public CAPEX expanded to 12.2 lakh crore
  
  
• INR 20,000 cr outlay for CCUS
  
  

India's Finance Minister, Nirmala Sitharaman, presented the Union Budget for fiscal year 2026-27 (FY'26-27) on 1 February, outlining the government's policy priorities amid a challenging global environment and an evolving domestic economic landscape.

The budget seeks to balance fiscal consolidation with growth support, while reinforcing India's long-term competitiveness across key sectors. Public capital expenditure remains a central pillar, having increased manifold from INR 2 lakh crore in FY15 to an allocation of INR 11.2 lakh crore in FY26, and is proposed to rise further to INR 12.2 lakh crore in FY27 to sustain infrastructure-led growth momentum.

Key announcements span infrastructure development, manufacturing, energy transition, trade facilitation and regulatory reforms, with a continued focus on strengthening supply chains and boosting domestic value addition. Measures targeting critical minerals, logistics efficiency, freight corridors and industrial inputs, alongside selective customs duty rationalisation, signal the government's intent to support core industries, ease input costs for downstream sectors and enhance India's role in global trade networks.

Also, certain tax collection at source rates are rationalised to address the cash flow issues on this account. Sale of minerals, being coal or lignite or iron ore and also scrap have been proposed to have rates of 2% instead of 1% earlier.

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Budget highlights:

Infrastructure

Government shall continue to focus on developing infrastructure in cities with over 5 lakh population (Tier II and Tier III), which have expanded to become growth centres. Public capex has increased manifold in past years and in this budget it is announced to increase it to INR 12.2 lakh crore to continue the momentum.

To strengthen the confidence of private developers regarding risks during infrastructure development and construction phase, Infrastructure Risk Guarantee Fund to is proposed to set up to provide prudently calibrated partial credit guarantees to lenders.

Carbon Capture Utilization and Storage (CCUS)

Aligning with the roadmap launched in December 2025, CCUS technologies at scale will achieve higher readiness levels in end-use applications across five industrial sectors, including, power, steel, cement, refineries and chemicals. An outlay of INR 20,000 crore is proposed over the next 5 years.

Dedicated freight corridors

To promote environmentally sustainable movement of cargo, it is proposed to: a) Establish new Dedicated Freight Corridors connecting Dankuni in the East, to Surat in the West; b) operationalise 20 new National Waterways (NW) over next 5 years, starting with NW-5 in Odisha to connect mineral rich areas of Talcher and Angul and industrial centres like Kalinga Nagar to the Ports of Paradeep and Dhamra.

Textile sector

For the labour-intensive Textile Sector, it has been proposed that an Integrated Programme with 5 sub-parts:

(a) The National Fibre Scheme for self-reliance in natural fibres such as silk, wool and jute, man-made fibres, and new-age fibres;

(b) Textile Expansion and Employment Scheme to modernise traditional clusters with capital support for machinery, technology upgradation and common testing and certification centres;

(c) A National Handloom and Handicraft programme to integrate and strengthen existing schemes and ensure targeted support for weavers and artisans;

(d) Tex-Eco Initiative to promote globally competitive and sustainable textiles and apparels;

(e) Samarth 2.0 to modernize and upgrade the textile skilling ecosystem through collaboration with industry and academic institutions.