Budget 2026 Incentives Target Capital Goods, Auto Localisation

The Government of India is preparing large incentive packages, totalling ₹23,000 crore. in the upcoming Union Budget with the focus on manufacturers of high-value capital goods and automobile components. As part of its ongoing work with the Production-Linked Incentive Scheme (PLI), plans are being developed for two packages focusing on the manufacture of construction equipment and the establishment of Auto Global Value Chains (GVC) (₹7,000 crore range).

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Construction Equipment Indigenisation

The construction equipment incentive package aims at encouraging localisation of high-end machinery (e.g., tunnel boring machines, crawler cranes, etc.) and aims to eliminate almost 50% of the total import dependence on China, Japan, South Korea, and Germany. Some of the imported components are hydraulic systems, undercarriages, electronic control systems, sensors, and telematics. 

Auto GVC Scheme Details

In addition to addressing the need for increased domestic production of vehicle components, the automobile-focused GVC Scheme will support the production of advanced driver assist systems (ADAS), 360 Degree Cameras, and sensors with the requirement for significant local value addition to the product. The auto GVC Scheme will include subsidies for moulds, power tools, and prototyping centres, specifically for pre-production testing. 

Policy Continuity and Precedents

The capital goods scheme is being expanded with an emphasis on localisation of electric vehicle/mobile battery manufacturing equipment, as highlighted in the recent Budget provision for customs duty exemptions on such equipment, due to the U.S. Tariff and pressure on Chinese imports through diversification of the China+1 initiative. 

Strategic Import Substitution

Localising the manufacture of construction equipment is critical to alleviating various infrastructural bottlenecks, with the delay of tunnel boring machines alone costing the NHAI & Metro Projects over ₹50,000 crore. Moreover, promoting ADAS technology in automobiles aligns with India's goal of achieving a minimum of 50% electric vehicle penetration by 2030 and reducing India's semiconductor import bill of $20+ billion annually.

Economic Multipliers

Past studies indicate that Capital Goods Production Linked Incentives (PLIs) have generated output between three and four times that amount through backward linkages, creating 5 lakh jobs for every ₹10,000 crore disbursed. The construction equipment scheme will reduce India's dependence on Chinese imports by approximately 40%, which parallels the previous mobile PLI success of 25% reduction in imports. The Indian automotive industry's global value chains (GVC) will target $100 billion in component exports by 2030, based on India's strength in ADAS technologies.