Factories that policy forgot: Can Budget 2026 breathe new life into India’s legacy industrial clusters?

In Union Finance Minister Nirmala Sitharaman's presentation of the Union Budget 2026–27, one point came through clearly: India’s next phase of growth cannot depend only on new infrastructure and new industrial zones. It will also depend on whether the country can repair industrial spaces that already exist, but have been allowed to decline over decades.

Throughout the Budget speech, productivity, competitiveness and structural reform were repeatedly emphasised as part of the broader vision of Viksit Bharat. Within this framing, the announcement of a scheme to revive 200 legacy industrial clusters may not have attracted immediate attention, but it is among the more consequential proposals in the document.

For years, industrial policy has largely looked forward rather than inward. New corridors, new estates and large manufacturing investments dominated the agenda. Older industrial towns, despite employing millions of workers and supporting extensive domestic and export supply chains, remained peripheral to policy thinking. The Budget signals a shift by acknowledging that these places still matter and that prolonged neglect has real economic and environmental costs.

By placing legacy clusters under the government’s first ‘kartavya’ (duty) — accelerating and sustaining economic growth — the Budget recognises that problems in these areas are not merely local or environmental. Congestion, pollution and decaying infrastructure directly raise production costs and weaken competitiveness.

This recognition is backed by broader measures. A Rs 10,000 crore SME Growth Fund is intended to support enterprises with the capacity to scale, while a Rs 2,000 crore top-up to the Self-Reliant India Fund aims to help smaller units navigate periods of transition.

The proposal to create “Corporate Mitras” — trained professionals who can help MSMEs manage compliance at reasonable cost — is particularly relevant for older clusters. In many such areas, regulation is complex, fragmented and often mediated through informal and expensive channels. Reducing the cost and uncertainty of compliance could ease pressure on small units.

As policy intent, this represents a necessary course correction. The scale of the challenge, however, becomes clear only when one looks at how these clusters were built — and how they were gradually abandoned.

Organic growth then slow institutional abandonment

India’s older industrial clusters were not created through policy design. They grew slowly and organically, shaped by geography, inherited skills, access to raw material and proximity to markets. Leather workshops developed along Kanpur’s riverbanks, iron foundries clustered in Howrah near coal and railways and power looms spread across Bhiwandi where land was cheap and labour readily available.

As production expanded, these places became dense industrial settlements. Factories, workers’ housing, schools, shrines and markets grew side by side, often along the same narrow streets. There was little separation between work and living spaces because none was expected. Pollution was visible, but it was accepted as part of earning a living.

For decades, this model worked. Legacy clusters absorbed migrant labour, supplied domestic and global markets and supported millions of informal livelihoods. But the very informality that enabled their rise later became their biggest weakness.

Infrastructure did not evolve with production. Roads built for local traffic were forced to carry heavy trucks. Open drains meant for household wastewater began receiving untreated industrial effluents. Power supply remained unreliable, pushing units to rely on diesel generators and coal-fired boilers. When environmental regulations tightened from the 1990s onwards, many clusters found themselves physically and financially locked into layouts that were difficult to upgrade.

Regulatory systems adjusted in response. Instead of redesigning industrial areas, enforcement became increasingly paperwork-driven. Pollution control shifted to files and approvals rather than conditions on the ground. Over time, once-productive manufacturing hubs turned into environmentally stressed but administratively tolerated spaces — too large to shut down, too complex to fix.

What ground evidence shows

Studies by the Centre for Science and Environment (CSE) highlighted how these structural failures translate into everyday environmental damage.

A 2025 CSE study on non-hazardous industrial waste points to a major regulatory gap. While hazardous waste is tracked through national inventories, non-hazardous industrial waste — such as slag, plastic waste, paper rejects and other process residues — falls outside the Hazardous Waste Management Rules, 2016. Industries are not required to report how much of this waste they generate, leaving regulators without reliable data.

CSE’s surveys across 23 industrial areas in Delhi-NCR found that none had a formal system to manage non-hazardous industrial waste. Open dumping was widespread, and burning was commonly used to clear accumulated waste. These practices directly worsen air quality and affect nearby residential areas.

Another CSE assessment of industrial air pollution in Delhi–NCR shows how fuel choices and infrastructure gaps combine to create pollution hotspots. Textile, metal, food processing and chemical industries together accounted for nearly three-quarters of the pollution load in the districts studied. Sonipat recorded particularly high particulate matter levels, largely due to widespread use of coal and biomass, even where cleaner fuels were available in limited form.

The evidence points to a basic constraint. As long as clusters function as collections of isolated units, environmental compliance will remain weak. Individual small enterprises cannot invest on their own in clean energy systems, waste management or pollution control infrastructure. Without shared facilities and clear policy direction, pollution becomes a predictable outcome.

What will decide impact of Budget’s promise

Despite visible decline, legacy industrial clusters continue to employ millions of workers and support regional economies, particularly in smaller towns where alternative livelihoods are limited. Keeping them outside policy has neither reduced pollution nor improved efficiency; instead, it has allowed operational problems to deepen, steadily weakening their competitiveness.

The Union Budget 2026–27 deserves credit for bringing these clusters back into focus and signalling a shift from neglect towards repair. While the Budget emphasises productivity and competitiveness, it remains unclear how this competitiveness will actually be built in older industrial areas marked by poor infrastructure and fragmented regulation.

Competitiveness in such clusters cannot come from unit-level upgrades alone. It depends on solutions at the cluster level — shared effluent treatment plants, centralised waste management, access to cleaner energy, safer internal transport and predictable compliance pathways. Without these, production costs will remain high and uneven. The cost of transition also matters, as cleaner fuels and modern technologies will stay out of reach for many small units unless structural cost barriers are addressed.

Above all, legacy clusters must be treated as living social and economic systems, not just production zones. Fixing factories without addressing housing, health, transport and worker safety will only shift pollution and risk from one street to another.

The Budget has acknowledged the problem and also marks a shift in intent — but how this will translate into a workable path to restore competitiveness in India’s legacy industrial clusters remains unclear.