The 3-Minute Brief
The "Reform Express" has reached terminal velocity.
With more than 350 structural reforms already implemented, the 2026 mandate across the EMID sectors has shifted from policy monitoring to regulatory execution. India’s manufacturing sector showed renewed strength in January, with a PMI rebound to 55.4, driven by a sharp increase in new orders, output, and technology investment. Recent legislative changes - and the Union Budget 2026-27 - has solidified this momentum by launching the India Semiconductor Mission (ISM) 2.0 and the SHANTI Act, 2025, which effectively ends the six-decade state monopoly on nuclear power. The strategic focus is now centered on Supply Chain Sovereignty, marked by the reclassification of Coking Coal as a critical mineral and the creation of Rare Earth Corridors. And of course, legal departments are preparing for the implementation of the Income Tax Act 2025 - which introduces the unified "Tax Year".
Macro View - The Era of Regulatory Execution
The narrative of 2026 is no longer about what the government plans to do, but about how industry operates under a modernized regulatory framework. The January manufacturing PMI of 55.4 signals a strong recovery from December lows, supported by increased technology investments and stable domestic demand.
We are seeing a fundamental shift in investment and customs oversight.
The traditional system based on officer-dependent approvals is being replaced by a warehouse operator-centric model featuring self-declarations and risk-based audits. Additionally, the government is rolling out the Customs Integrated System (CIS) to create a single, integrated digital platform for all processes. For foreign investors, the comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules aims to create a contemporary framework that replaces blanket restrictions with rule-driven certainty aligned with India's evolving economic priorities.
Energy and Mining: Supply Chain Sovereignty
On January 27, 2026, the Ministry of Coal officially notified Coking Coal as a Critical and Strategic Mineral under the MMDR Act, 1957. This reclassification is a major legal step to address India’s 95% import dependence for the steel industry.
The SHANTI Act and Nuclear Liberalization: The Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, 2025, has ended the state monopoly.
• Private Entry: Eligible Indian private firms and joint ventures can now construct, own, and operate nuclear plants.
• FDI & Liability: Foreign investment is permitted up to 49% under the automatic route.
Crucially, the SHANTI Act removes statutory supplier liability unless specified in a written contract, aligning India with international standards.
• Data Center Power: This liberalization allows the use of Bharat Small Reactors (BSR) - 220 MWe units based on proven PHWR technology - to provide dedicated, low-carbon power for energy-intensive sectors like data centers.
• Dispute Resolution Mechanism (Nuclear Sector): The SHANTI Act creates a multi-tier framework to bypass civil court delays: Reviews by the Board → Atomic Energy Redressal Advisory Council → Appeals to the Appellate Tribunal for Electricity (APTEL) → Supreme Court.
Statutory Spotlight
MMDR Act, 1957 (Amended 2026): The addition of Coking Coal in Part D of the First Schedule empowers the Central Government to conduct auctions, with royalties going to the central government rather than the states.
Key benefits include exemptions from public consultation and the ability to use degraded forest land for compensatory afforestation to reduce project development time.
Defense and High-Tech Manufacturing: Design-to-Deliver
India’s defense sector has transitioned from a period of policy reset to one of aggressive regulatory execution, hitting a record production value of ₹1.54 lakh crore in FY 2024-25. With defense exports reaching an all-time high of ₹23,622 crore, the strategic roadmap is now firmly set on achieving ₹50,000 crore in exports by 2029.
This trajectory is underpinned by the launch of India Semiconductor Mission (ISM) 2.0, which signals a shift toward owning the "brains" of high-tech hardware. Unlike its predecessor, ISM 2.0 focuses on designing full-stack Indian IP and producing the equipment and materials necessary for a self-reliant ecosystem. To capitalize on high investment momentum, the government has near-doubled the outlay for the Electronics Components Manufacturing Scheme (ECMS) to ₹40,000 crore.
While the Defense Acquisition Procedure (DAP) 2020 remains the roadmap for capital acquisition, regulatory teams must now navigate the Defense Procurement Manual (DPM) 2025, which became effective November 1, 2025, to govern revenue procurement. The DPM 2025 introduces several "industry-friendly" pivots designed to lower the barriers for domestic firms:
Lowered Liquidated Damages: Damages are now capped at 0.1% per week specifically for indigenisation projects to reduce financial risk for innovators.
Order Continuity: The manual introduces guaranteed orders for indigenous products for up to five years, providing the long-term revenue certainty required for "Design-to-Deliver" investments.
As firms move into high-value design, they must account for the 2025 updates to the SCOMET list. A new Category 7 now regulates "Certain Emerging Technologies," including quantum computing and advanced materials. Because the sector is pivoting toward IP creation, legal departments must implement robust protocols for Intangible Technology Transfers (ITT). Under SCOMET, the transfer of technical data, including blueprints, algorithms, and engineering manuals, is now as strictly controlled as physical hardware.
To support this high-growth ecosystem, the regulatory environment for manufacturing is becoming more operator-centric:
Customs Transformation: The warehousing framework is shifting away from officer-dependent approvals to a warehouse operator-centric system utilizing self-declarations and risk-based audits.
Bonded Zone Exemptions: Non-residents who provide capital goods, equipment, or tooling to toll manufacturers in a bonded zone are now eligible for a five-year income tax exemption.
Safe Harbour Expansion: To provide tax certainty for R&D, a common safe harbour margin of 15.5% now applies to all IT services (including contract R&D and software development), with the eligibility threshold raised significantly to ₹2,000 crore.
Statutory Spotlight
Recognizing data centers as critical infrastructure, the Union Budget 2026-27 provides a tax holiday until 2047 for any foreign company providing cloud services to global customers using Indian data centers. To qualify, firms must provide services to Indian customers through an Indian reseller entity. Additionally, a safe harbour of 15% on cost is proposed for related-entity service providers in this space.
Infrastructure: Strategic Connectivity and Smart-Infra
With public capex increased to ₹12.2 lakh crore, the focus is on reducing risks during the development phase.
Key Enablers:
• Infrastructure Risk Guarantee Fund: This new fund will offer partial credit guarantees to lenders, aiming to attract private developers and bond investors by absorbing construction-phase risks.
• Telecommunications Act Interplay: Since January 1, 2025, states have been mandated to implement uniform Right of Way (RoW) rules via a digital portal.
This facilitates the installation of small cells on street furniture, critical for 5G network densification.
The ‘Sagebridge’ Legal Watchlist
• FDI Compliance: Review investment structures against the new risk-based screening and the updated FEMA (Non-debt Instruments) Rules.
• Labour Codes: Finalize readiness for the finalized Labour Codes.
• Fixed-Term Employment (FTE) now requires wage/benefit parity with permanent staff and grants gratuity eligibility after just 1 year of continuous service.
• Environmental Monitoring: Align with the Carbon Credit Trading Scheme (CCTS), which has set mandatory Emission Intensity (EI) targets for 2025-27 for the steel, aluminum, and power sectors.
• Arbitration Clauses: In light of the Bhadra International ruling, audit all contracts for unilateral arbitrator appointment clauses, which are now void ab initio unless waived by express written agreement after a dispute arises.
Did you know?
Rules 7(6) and 9(6) of Telecommunications (Right of Way) Rules, 2024, introduce the concept of "Deemed Permission." If a public entity fails to respond within the mandated timeline, the portal will generate a system-deemed approval, based on the principle of administrative efficiency. This removes the "officer-dependent" bottleneck for fiber and tower deployment.
This publication contains general information and is not a substitute for specific legal advice. No client-lawyer relationship is created by its receipt.
We would love to hear from you! To let us know what you liked and disliked about our newsletter, please mail [email protected]
Knowledge Hub - our go to platform for diving deep into EMID topics and more.