Ficci pushes defence, exports and tax reform ahead of budget 2026

NATIONAL: Ficci has fired the opening salvo ahead of the Union Budget 2026–27, urging the government to double down on defence, exports and domestic capital as the global economy drifts into choppier waters.

The industry body’s pitch comes against a fragile global backdrop. The IMF now pegs world growth at 3.2 per cent in 2025, easing to 3.1 per cent in 2026, with protectionism, tariff volatility and geopolitical risk weighing on trade and investment. India, by contrast, remains the outlier: real GDP grew 6.5 per cent in FY25 and is tipped by the RBI to edge up to 6.8 per cent this year, keeping alive the near-8 per cent path needed for a ‘Viksit Bharat’ by 2047.

Ficci wants the budget to lean into that advantage. It has called for defence spending to rise by about 10 per cent, with capital outlay lifted to 30 per cent of the ministry of defence budget to fast-track drones, air defence, electronic warfare and border infrastructure. The lobby also wants an extra Rs 10,000 crore for the defence research and development organisation to bankroll deep-tech, from AI-enabled systems to autonomous platforms, and a new defence export promotion council to help hit the Rs 50,000-crore export target by 2028–29.

On manufacturing, Ficci is pushing for a mega electronics industrial park to replicate the dense supply chains of Shenzhen and Vietnam, and for cleaner customs codes and tariffs for printed circuit board assemblies to curb imports and lift value addition at home.

Critical minerals are another flashpoint. With clean energy, EVs and semiconductors driving demand for lithium, cobalt and rare earths, Ficci wants a dedicated tailings-recovery programme under the national critical minerals mission, backed by a geo-referenced atlas of mine waste and cheaper finance to turn old dumps into new supply.

Exports, rattled by US tariffs and carbon and deforestation rules, need more oxygen. Ficci says the Rs 18,233-crore outlay for the RoDTEP rebate scheme is too thin and should be lifted and locked in for at least three years to keep Indian goods competitive.

The group is also asking for a smarter tax play for India’s 1,600-plus global capability centres, whose rising R&D and digital roles are clashing with an outdated transfer-pricing regime. Clearer safe harbours and faster advance pricing agreements would, it argues, keep multinationals expanding in India.

To fund all this, Ficci wants a deeper bond market. It is lobbying to widen the pool of firms forced to tap debt markets, relax insurer and pension-fund limits so patient capital can flow into infrastructure, and restore favourable tax treatment for debt mutual funds, whose share of industry assets has slid below 25 per cent since 2023.

Add in a big push on drones, farm productivity and a national youth service scheme to plug last-mile delivery gaps, and the message to North Block is blunt: as global growth cools, India must spend, build and reform its way to resilience.

Ficci has also trained its sights on the tax system, arguing that clogged appeals, rigid recovery rules and patchy digital plumbing are choking investment just when the economy needs momentum.

At the heart of the complaint is a towering backlog at the commissioner of income tax (appeals), with 5.4 lakh cases involving Rs 18.16 lakh crore stuck as of April 1, 2025. What was meant to be a slick, faceless appeals system has instead produced serial notices, missing hearings and remand reports that go unanswered, leaving taxpayers in limbo and refunds frozen for years.

Ficci is pressing for a two-track disposal model, fast-tracking small and routine matters while forcing complex, high-value disputes through a stricter, time-bound process. It also wants 40 per cent of vacant appellate posts filled immediately and automatic stays — with refunds — when appeals drag beyond two years without taxpayer fault.

Cash-flow pain is being compounded by how tax demands are enforced. Although rules allow a stay once 20 per cent of disputed tax is paid, refunds are routinely adjusted by the central processing centre against stayed demands because orders are not digitally synced. Industry is asking for real-time integration between assessing officers and CPC, and for bank guarantees or insurance bonds to be accepted instead of cash deposits, following models used by tax authorities in Australia and other developed markets.

Corporate restructuring has become another fault line. Under the new income-tax code, fast-track demergers — introduced to unclog the NCLT and speed up intra-group restructurings — have been denied tax-neutral status. Ficci warns this makes the fast-track route pointless, and is pushing for section 233 of the Companies Act to be brought back into the tax-neutral framework so small and internal demergers can proceed without punitive tax bills.

On compliance, the lobby is calling time on India’s labyrinthine TDS regime, which has 37 different rates ranging from 0.1 per cent to 30 per cent. It wants the system collapsed into three slabs — salaries, sin-style winnings and two standard rates — and B2B payments under GST taken out of TDS altogether, arguing the current micro-deductions add paperwork but raise little revenue.

Multinationals, meanwhile, are demanding clarity on what constitutes a “business connection”. Foreign manufacturers remain wary of placing machinery or holding components in India because it can trigger local tax liability. Ficci wants explicit exemptions for just-in-time inventories and free-of-cost equipment used by Indian contract manufacturers, a promise already floated by the finance minister but not yet delivered.

Transfer-pricing rules have also become a flashpoint. The new tax code has quietly widened the definition of “associated enterprises”, potentially dragging in unrelated lenders and contract manufacturers. Industry is asking the government to revert to the older, narrower definition to prevent a fresh wave of litigation.

Even buybacks are under fire. Since last year’s changes, the entire payout from a buyback is treated as dividend, even when it comes from share premium or fresh capital rather than profits. That, Ficci argues, leads to the absurd result of shareholders being taxed on what is effectively a capital loss. It wants buybacks taxed only on the profit element, in line with practice in the UK, Australia and the Netherlands.