Union Budget 2026–27 Pushes Self-Reliance, Boosts Chemicals, Pharma, EV and Semiconductor Value Chains

The Union Budget 2026-27 signals a clear strategic push towards self-reliance in critical chemicals, pharmaceuticals, electronics, energy transition materials, and agro inputs. With total government expenditure estimated at ₹53.47 lakh crore, a 7.7 per cent increase over FY 2025-26, the budget combines targeted policy interventions, higher capital outlays, and calibrated customs duty rationalisation to reshape multiple downstream markets.

Interest payments continue to account for 26 per cent of total expenditure, while 40 per cent of revenue receipts are absorbed by debt servicing underscoring the government’s need to balance fiscal prudence with industrial growth.

Energy, Electronics & Semiconductor Ecosystem: Structural Demand for Specialty Chemicals
The energy and electronics segment receive a multi-pronged boost:

• Electronics Component Manufacturing Scheme outlay increased from ₹22,919 crore to ₹40,000 crore
• Semiconductor Mission 2.0 announced
• ₹20,000 crore allocated over five years for carbon capture, utilisation and storage (CCUS)
• Dedicated Rare Earth Corridors to be developed in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu

Impact on Chemical Markets
These measures directly support demand for high-purity inorganic chemicals, specialty oxides, battery materials, and semiconductor-grade inputs. Reflecting this strategic intent, customs duties on several critical materials have been rationalised:

• NIL BCD on rare-earth metals, lithium compounds, cobalt oxides, nickel sulphates, germanium oxides, vanadium oxides
• 2.5 per cent BCD on natural graphite, artificial graphite, quartz, silicon dioxide
• ₹1 per tonne duty on petroleum crude, maintaining feedstock competitiveness

This combination of policy support + low import tariffs is expected to accelerate EV battery manufacturing, semiconductor fabs, and advanced electronics assembly, while reducing dependency on a limited number of global suppliers.

Inorganic Chemicals and Minerals: Strategic Duty Rationalisation
The budget introduces a clear differentiation between strategic raw materials and revenue-sensitive commodities.

Key Changes
NIL duty on most critical minerals and battery-related inorganic chemicals, including:

• Lithium carbonate, lithium hydroxide
• Cobalt and nickel compounds
• Rare-earth metals

Moderate duties retained on bulk industrial inputs:

• Phosphoric acid – 5 per cent
• Ammonium nitrate – 5 per cent
• Coal and briquettes – 2.5 per cent

Artificial graphite at 2.5 per cent duty aligns with rising demand from lithium-ion batteries, electrodes, and energy storage systems.

Market Impact

• Encourages domestic downstream value addition rather than raw material extraction alone
• Supports fertiliser, battery, and specialty inorganic producers through predictable input costs
• Improves cost competitiveness of Indian EV, electronics, and advanced materials manufacturers

Organic Chemicals, Polymers and Specialty Materials
Selected organic intermediates and polymers see calibrated tariff structures:

• Propylene oxide (2.5 per cent) supporting downstream polyols, propylene glycols, and polyurethane chains
• Gibberellic acid (5 per cent) relevant for plant growth regulator demand in agriculture
• Super Absorbent Polymer (SAP) NIL duty, aiding hygiene and personal care markets
• Polyvinyl Chloride (PVC) 7.5 per cent, protecting domestic polymer capacity while maintaining controlled imports

Inorganic Chemicals and Minerals

Organic Chemicals and Intermediates

Polymers and Specialty Chemicals

Agriculture and Allied Chemical Demand
Agriculture-focused announcements while not headline grabbing have indirect but meaningful implications for chemical consumption:

• Extended deductions for cooperative members supplying cotton seeds and cattle feed
• Credit-linked subsidy for animal husbandry
• Coconut promotion scheme to raise production

These measures are likely to support steady demand for:

• Fertilisers and inorganic nutrients
• Agrochemicals and plant growth regulators
• Feed additives and mineral supplements

Pharmaceuticals and Life Sciences: Strong Push for Biologics and Biosimilars
The pharmaceutical sector emerges as a key beneficiary with the launch of Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology, and Innovation).

The scheme will run for five years with an outlay of ₹10,000 crore, aimed at enabling domestic production of biologics, biosimilars, and advanced therapeutics.

Key Market Implications

• Establishment of three new National Institutes of Pharmaceutical Education and Research (NIPERs) and upgrading of seven existing institutions will strengthen R&D talent, clinical translation, and manufacturing scale-up.
• Increased demand is expected for pharma intermediates, fermentation nutrients, specialty solvents, and inorganic reagents used in biologics manufacturing.
• Imports of critical pharma intermediates such as artemisinin and thymidine continue under existing tariff structures, ensuring supply stability during the transition phase.

Overall, the budget reinforces India’s ambition to move up the pharmaceutical value chain, from generics to complex biologics and high-value APIs.

Overall Market Outlook
The Union Budget 2026-27 reflects a clear industrial strategy rather than short-term stimulus. By combining:

• Targeted fiscal outlays
• Customs duty rationalisation
• Institutional capacity building
• Focus on strategic sectors (pharma, EV, semiconductors, energy transition)

The government is setting the stage for long-term demand growth across inorganic chemicals, specialty materials, polymers, and high-value intermediates.

For chemical manufacturers, traders, and investors, the budget signals:

• Lower input cost volatility
• Stronger downstream integration opportunities
• Sustained demand from sunrise sectors

On Global Uncertainties and India’s Market Positioning
Against the backdrop of heightened global uncertainties including geopolitical tensions, supply chain disruptions, energy price volatility, and tightening trade policies the Union Budget 2026-27 provides a critical stabilising framework for India’s chemical, pharmaceutical, and materials markets. By rationalising customs duties on strategic raw materials, strengthening domestic manufacturing through targeted fiscal outlays, and reducing dependence on concentrated global supply sources, the budget cushions Indian downstream industries from external shocks. This policy-led cost visibility and supply security are expected to mitigate volatility in input availability and pricing, allowing manufacturers to plan capacity expansion, deepen value addition, and remain competitive even as global chemical and energy markets face uneven recovery and structural realignments.

In summary, FY 2026-27 marks a structurally positive inflection point for India’s chemical and allied industries, particularly those aligned with technology, energy transition, healthcare, and advanced manufacturing.