Budget 2026 Expectations: FMCG Industry Flags GST Credit Bottlenecks, Seeks Tax Rationalisation

Ahead of the Budget, expectations are rising across sectors, particularly on the income-tax (IT) front. However, with the proposed Income-tax Act, 2025 already introduced, some industry experts expect limited substantive changes on the direct tax front in the upcoming Budget.

“One of the most pressing areas requiring attention is the simplification of compliance, particularly in the area of tax deduction at source. TDS is not a tax on the deductor’s income; rather, the deductor acts as an agent of the State, facilitating tax collection,” said Dinesh Kanabar, Chairman and Chief Executive Officer of Dhruva Advisors India Private Limited.

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"Continued government support for solar and EPC-led infrastructure projects will be key to sustaining capacity addition and strengthening execution capabilities on the ground," Srinivas Suthram, senior vice president, Kshema Power India, said.

Suthram added that clear and consistent policies on land availability and grid connectivity would help revive momentum and encourage long-term investments in the sector.

Further, a calibrated rationalisation of import duties on critical renewable components would help reduce project costs and address supply-chain constraints while domestic manufacturing continues to scale.

The Centre is likely to increase the annual allocation for the Revamped Distribution Sector Scheme (RDSS) to ₹18,000 crore in the upcoming Union Budget. In the FY26 Budget, the scheme was allocated nearly ₹16,000 crore. The proposed increase comes at a time when power distribution companies (discoms) continue to face financial stress, with cumulative debt exceeding ₹7 trillion.

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The defence budget is an important factor in sustaining preparedness while gradually strengthening indigenous manufacturing as we advance towards Viksit Bharat 2047.

The forthcoming revision of the Defence Acquisition Procedure (DAP) offers a timely window to introduce focused reforms, including phased localisation, enhanced incentives for micro, small and medium enterprises (MSMEs), and stronger vendor-led ecosystem development. These measures could further open up the defence sector, accelerate procurement processes, and strengthen India’s push towards self-reliance in defence manufacturing under the Atmanirbhar Bharat initiative.

“As India prepares for Budget 2026, it is crucial to strengthen the digital healthcare ecosystem while formally recognising eldercare as a priority sector," Prashanth Reddy, founder & managing director, Anvayaa, said.

He added that policy measures such as tax incentives for senior care services, expanded insurance coverage for preventive and assisted care, and incentives for digital health platforms would help scale home-based care models. These steps could not only enhance the quality of life for seniors but also support the development of a sustainable, technology-led healthcare and eldercare ecosystem.

For MSMEs, tech-enabled goods transportation by road is emerging as a critical lever for competitiveness, market access, and participation in wider value chains, enabling small businesses to reach new markets and respond quickly to evolving customer demand," Uttam Digga, chief executive officer, Porter, said.

The industry urges for clearer regulatory and tax distinctions between logistics models to ensure policy intent translates into on-ground efficiency.

"India’s next infrastructure leap will be defined less by what we build and more by how reliably we operate it. The Budget has an opportunity to recognise infrastructure not just as capital expenditure, but as a long-term operating system—where uptime, safety, compliance and workforce capability determine real outcomes," Kamal Pal Hoda, CEO & Executive Director, Bluspring Enterprises, said. He highlighted that failures across hospitals, factories, telecom networks and public campuses, rarely come from lack of assets; they come from fragmented operations, under-skilled frontline roles and inconsistent execution.

"Targeted support for digital asset management, predictive maintenance and integrated operations can materially improve safety, productivity and lifecycle value. Equally important is treating India’s blue-collar workforce as a national capability. Investments in vocational skilling, formalisation and social security will convert frontline jobs into skilled careers, improving reliability across mission-critical sectors," Hoda added.

"By incentivizing compliance-first, tech-enabled integrators and vocational skilling for blue-collar roles, we can elevate frontline workers into a strong national force, boosting safety, productivity, and lifecycle ROI. This shifts us from vendor chaos to accountable, nation-scale systems—essential for 7%+ GDP growth," he further said.

"In most FMCG categories, after the GST reduction, most items now fall under the 5 percent GST slab, which makes it difficult for brand owners, as most of the services used in manufacturing fall under a higher GST slab. As a result, they are unable to fully utilise the excess input tax credits. For brands spending significantly on marketing, the GST paid on ad spends continues to accumulate. Currently, there is no mechanism available to settle this in the form of refunds, which adds to the cost of manufacturing and selling," said Nikhil Doda, Co-Founder, Lahori Zeera.

"A similar issue arises while setting up new manufacturing machinery. The GST incurred on purchasing machines is higher, and since the output tax slab is lower, it cannot be utilised fully. This leads to continuous accumulation of credits, increasing working capital requirements and the overall cost of conversion. The industry is eagerly awaiting a solution that does not discourage further investment in plant and machinery," he added.

"We also expect the Budget to focus on boosting rural and semi-urban demand through higher allocations towards infrastructure development, agriculture, and employment generation. Increased disposable income in these regions directly translates into higher consumption for mass-market FMCG and beverage brands like ours," Doda further said.

Aditya Sesh, Founder & MD, Basiz said, "The government has taken several positive steps to strengthen agricultural liquidity and post-harvest management, particularly through the rollout of e-Negotiable Warehouse Receipts (e-NWRs). With GST rationalisation across key agri inputs, a clear regulatory framework for warehousing, and interest subvention support, the foundation is firmly in place,"

"The next phase should focus on scaling adoption especially among small and marginal farmers by expanding budgetary allocations for micro-warehouses, cold storage and post-harvest infrastructure, while simultaneously strengthening farmer awareness and training through FPOs. A sustained and gradual increase in allocations, coupled with education and last-mile implementation, will be critical to unlocking the full potential of e-NWRs and improving farm-level liquidity without distress sales," he added.

K Rathnam, Whole Time Director & CEO, Milky Mist Dairy Food Limited, said, “The dairy sector is a cornerstone of India’s food security and rural economy, directly supporting millions of farmers and allied livelihoods.”

He added that Union Budget 2026 can accelerate growth through rationalisation of key inputs, enhanced cold-chain infrastructure,\ and targeted incentives for farmers and dairy companies, enabling modernisation, efficiency and improved incomes across the value chain.

Shriprakash Pandey, Chairman and MD, Commtel Networks, said, “Budget 2026 is an opportunity to decisively strengthen India’s critical national infrastructure (CNI) by recognising cyber-physical security and resilience as a core national capex priority, not merely an IT expense.”

He added that the next budget should support lifecycle assurance, modernise mission-critical communications, incentivise domestic manufacturing, and develop a skilled OT cybersecurity talent pipeline to ensure resilient, secure and reliable infrastructure across sectors.

Kashyap Devulapally, Co-founder & CCO at Elima, said India’s circular economy—already valued at $45–50bn—has the potential to become a core pillar of Viksit Bharat 2047 if treated as industrial infrastructure rather than a compliance obligation.

“India’s circular economy is already a $45–50 billion opportunity,” he noted, adding that targeted tax incentives, industry recognition and long-term financing could scale recycling, urban mining and material recovery, reduce import dependence for critical EV and electronics materials, and strengthen manufacturing resilience while generating green jobs.

Pramod Kasat, Managing Director, Investment Banking at Intellecap, said the Union Budget presents a timely chance to reinforce MSMEs as engines of inclusive and resilient growth. From a capital markets lens, he noted that instruments such as risk-sharing mechanisms, credit enhancement and catalytic capital can significantly improve enterprise bankability and unlock private investment.

“Deeper risk-sharing frameworks and greater use of catalytic capital can help crowd in private investment,” he said, adding that such measures can scale transition-aligned businesses while preserving fiscal stability.

Vijay Shetty, President and Head of the Commercial Banking Group at Axis Bank, said Union Budget FY27 could play a key role in accelerating MSME-led growth as India advances up the manufacturing and export value chain.

He underscored the need for improved access to affordable credit, stronger credit guarantee frameworks and faster cash-flow cycles for smaller suppliers. "Equally important can be a sustained policy support for digital adoption, simplified compliance and technology upgradation, which can significantly improve MSME productivity and resilience," he added.

"With India accelerating its renewable energy and energy-transition goals, the Union Budget 2026 should continue to support domestic manufacturing across solar PV modules, power electronics, motors, pumps and lighting solutions. Policy stability through consistent PLI frameworks, rationalisation of customs duties on critical raw materials, and incentives for backward integration, including components and upstream technologies,will be essential to reducing import dependence, strengthening supply-chain resilience, and building globally competitive manufacturing ecosystems," said Vinit Bediya, Chairman and Managing Director, Silver Consumer Electricals Limited.

“Budget 2026 has an opportunity to enable earlier and more efficient fertility care through practical measures. Integrating fertility screening into preventive health programmes and extending insurance coverage to diagnostics and early stage interventions would allow people to seek care sooner, when treatment is more effective and costs are better controlled. Access must be matched with quality. National standards for fertility laboratories, structured training for embryologists, and consistent clinical protocols are essential to delivering safe and reliable outcomes across the country. These are targeted investments with long term returns. Strong fertility care infrastructure supports family formation, demographic stability, and a more resilient healthcare system, making it a logical inclusion in India’s health and economic planning,” said Abhishek Aggrawal, Chief Executive Officer, Birla Fertility and IVF.

"In my view, the upcoming Union Budget 2026 should lay strong focus on the manufacturing sector, small businesses, and priority sectors. If we implement this with true intent and inclusivity, I see a massive potential to strengthen grassroots entrepreneurship and transform India’s village economy into a global growth engine. I strongly believe that unique, traditional businesses like Makhana production, which originates in our villages, hold immense global potential and deserve great attention," said Tarun Poddar, CEO, Foxhog Ventures.

"The National Education Policy 2020 has already laid out a progressive and well-considered roadmap. What is now required is sustained investment in the people and institutions responsible for delivering it. Rather than focusing on numerical targets, the Budget must prioritise how resources are deployed, with teacher education and school education placed firmly at the core. Scale has never guaranteed quality. No reform in higher education, research, or innovation can compensate for weak school foundations or underprepared teachers. Dedicated institutions for teacher training must evolve into centres of pedagogical excellence, supporting continuous professional development rather than compliance-based certification. Strong school systems create confident learners who transition naturally into research, innovation, and leadership roles," said Professor Padmakumar Nair, Vice Chancellor, Thapar Institute of Engineering and Technology.

"One of the most critical areas is power distribution, where the rapid rollout of smart meters, rooftop solar, electric vehicles, and distributed energy resources is increasing grid complexity. Budget support that accelerates Advanced Metering Infrastructure beyond billing use cases, toward grid operations, power quality monitoring, and demand-side flexibility, will unlock far greater value from existing investments. Equally important is grid-edge intelligence enabled by interoperable, standards-based IoT connectivity. Supporting scalable, cost-efficient connectivity options and long-term lifecycle-efficient infrastructure will help utilities adapt to evolving requirements without repeated asset replacement," said Teppo Hemiä, Founder & CEO, Wirepas.

"The Indian personal care & hygiene sector is poised for growth, and the 2026 Union Budget presents an incredible opportunity to transform the industry. Focused incentives, i.e., prioritizing infrastructure development and supply chain enhancements, will encourage MSMEs to scale operations and expand into global markets. A simplified roadmap within the 'Make in India' initiative, with rationalized customs duties on critical materials and ingredients, coupled with the GST inverted duty structure, will provide homegrown brands with the liquidity to invest in R&D and future-ready technology," said Mahesh Ravaria, Executive Director, Beauty Garage Limited.

"In sectors like food and consumer goods, AI-based solutions are helping companies manage regulatory compliance, improve label accuracy, and build trust with consumers. Continued policy support through incentives for AI adoption, easier access to data, and simplifying compliance processes for growing sectors like food can help startups scale their solutions faster. A focus on AI skilling, digital infrastructure, and stronger collaboration between industry and startups will also be important. These steps can help innovation move beyond pilot projects and into everyday business use, while maintaining regulatory clarity," said Dr. Rashida Vapiwala, Founder and CEO, LabelBlind.

"The next phase of logistics transformation will need sharper execution and more targeted policy intervention, particularly beyond metropolitan centres. More investment in first- and last-mile connectivity, sustainable, technology-led warehousing and fulfilment, along with a clear focus on skilling and talent development, will be key. A Budget that aligns infrastructure, physical networks and human capital will equip the sector to deliver faster and smarter outcomes, while supporting the country’s long-term economic growth," said Ravi Goel, CEO of RapidShyp.

Arun Lakhani, Chairman and Managing Director, Vishvaraj Environment Limited said, "As India prepares itself for a sustainable and climate-resilient growth, water infrastructure should become a national policy. First, mandatory treated wastewater reuse for cities, industries and utility clusters to reduce freshwater stress.

Second, a structured policy framework enabling institutional reforms and capital market participation for PPP–HAM–based projects in treated wastewater reuse and irrigation modernisation to elevate water infrastructure

Lastly, provide incentives for green bond issuance by Urban Local Bodies and enhance budgetary allocations to key sewerage schemes to support National Green Tribunal compliance."

Yummi Talwar, Chief Operating Officer – South Asia Region, VFS Global said, “From a travel and mobility perspective, Budget 2026 presents a strong opportunity to reinforce the foundations of the sector through strategic investments. Enhanced allocation towards tourism infrastructure and development can significantly strengthen connectivity while enabling more sustainable and inclusive growth across destinations. At the same time, focused investment in education and skilling, particularly in line with the government’s priority of preparing youth for an AI-driven future will be critical to building a future-ready workforce that can support the evolving needs of global mobility.

Continued emphasis on digital infrastructure and secure technology systems will further simplify travel facilitation, enhance efficiency, and build trust across cross-border journeys. A forward-looking Budget that brings together infrastructure development, AI-led skilling, and technology enablement can play a pivotal role in positioning India as a competitive, agile, and globally integrated economy."