Budget Announcements- Good For Its Capex Increase, Chip Manufacturing, High-Speed Rail Corridors, Sentiment Dampener For Stock Markets

The Budget presentation on Sunday February 1^st, 2026 held few surprises. It made three marquee announcements- raising the Capex budget by one lakh crores to 12.2 lakh crores. This will certainly help to keep the GDP growth on track at around 7% per annum via continued infrastructure development.

However, there are no direct incentives for greater private sector capex unless they choose to take up one or the other of the several incentivised sectors for boosting manufacturing.

The macro-economic markers have been preserved intact by this prudent budget, marked by incremental continuity rather than big bang initiatives.

The fiscal deficit target has been set at 4.3% of GDP for 2026-27. The government will target a debt to GDP ratio of 55.6% of gross domestic product for 2026-27 and the intention is to lower this going forward. Total government debt stands at 85% of GDP with the Centre accounting for 57% of it. This, as it stands, compares well with most other developed countries.

Second, there is an allocation of Rs 40,000 crores for electronics manufacturing, namely semiconductor or chip manufacturing. It is a second tranche to promote this vital sector, its R&D efforts, and training.

Third is the plan to develop 7 high speed rail corridors between major growth-oriented cities. These are Mumbai-Pune, Pune-Hyderabad, Hyderabad -Bengaluru, Hyderabad-Chennai, Chennai-Bengaluru, Delh-Varanasi, Varanasi-Siliguri.

Religious and pilgrimage tourism which has become a significant economic contributor in recent  times, with visitors to Ayodhya contributing 1% of GDP, and Varanasi proving to be a magnet with the largest number of visitors in the country, received careful attention in the budget. There will be new pilgrimage tourism circuits developed not only for Hindus but also Buddhists.

Several neglected ASI designated monuments will also receive restoration funds and initiatives. Other circuits for trekking in Himachal Pradesh and Uttarakhand will also be developed. Yet more for bird watching will be developed in Kerala, Assam and other states.

Many of the other announcements were intended as long-term structural adjustments to various sector incentives and duties towards the Vikshit Bharat targets for 2047. One example of this are the customs duty exemptions on components and parts to boost civil and defence aviation. India is keen to make its military and civilian aeroplanes in India now, along with  commercial ships and containers. This is in addition to a big push for military oriented ships and submarines, even another aircraft carrier, for the Indian Navy and Coast Guard. India is expanding its ports, container handling facilities, transshipment facilities along with setting up new ports along both coast lines and in the Andamans. Rs.10,000 crores will be invested in container manufacturing.

There is also a boost for inland waterways expansion for rare earth mining corridors in several states such as Odisha, Kerala, Andhra and Tamil Nadu to aid its transportation via these waterways. 

There was a boost given to the intended establishment of Data Centres by foreign entities with a tax exemption provided till 2047 juxtaposed with encouragement for them to provide cloud services internationally and to Indian entities via Indian intermediaries. 

Likewise, another Rs. 10,000 crores was set aside as incentive to develop the bio-pharma space. India will also use Rs 20,000 crores to develop carbon capturing facilities. Seaplane manufacturing will be facilitated. Fishing at sea is being incentivised with no tax, and dropping off the catch abroad will be treated as an export.

There were incentives announced for education and skilling. There are a large number of small incentivisation for a variety of items in this budget. Tax compliance process too has been eased.

Given a fragile stock market that has underperformed other emerging markets, plagued by FII abandonment and heightened volatility, it could have done with some encouragement. A lot of money was sucked into a slew of IPOs in the primary market over the past year and a pronounced rupee weakness too has not helped.  A capital gains tax easing and removal of withholding tax on FIIs would have greatly enthused the market. But it was not to be. Instead, there was a 50% hike of STT on futures and 150% on options which is estimated to raise a modest Rs 25,000 crores.

These impositions, on the face of it, therefore are not big in their impact on F&O traders, but sharply damaged the market sentiment, at least in first reaction.  The market fell hardest in the last six years. But it could drive more FIIs away in the short to medium term towards freer markets elsewhere and reduce liquidity even in the cash market.

There was a pre-budget expectation for a boost in defence spending particularly for aatmanirbhar manufacturing.  This did come in the budget with a 15.3% hike to 7.84 lakh crores in the budget of which only  2.19 lakh crores  is for capital outlay. This did not please the street, with profit taking on defence stocks which had risen some 16% in the run up. It could also be that some further purchases will happen on an ad hoc basis going forward, as and when negotiations finalise. There is probably a case for most important and even reformist initiatives being taken off-budget in the future.

In the end, this union budget was a continuity budget signalling stability within the constraints of a tight fiscal situation and geopolitical turbulence.

 

(881 words)

February 1^st, 2026

For: Firstpost/News18.com

Gautam Mukherjee

 

Why the EU President Calls The Imminent FTA with India The Mother Of All Deals

The 27 member EU, supported by its neighbouring countries, mostly in Eastern Europe, who also want to join it, is a very large and influential economic unit. Croatia was a recent entrant after many years of adjustments and preparation. The EU is a $22.52 trillion conglomerate on a nominal basis or $30.18 trillion on a PPP basis. Great Britain, no longer in the EU after Brexit, has already signed its own separate FTA with India recently.

The 32 member NATO, also largely European, are intertwined in many ways with the EU. The EU rivals the United States in heft and size, and as India’s negotiations with both approach closure, the FTA with the EU is likely to be signed first. It will no doubt have a knock-on effect on the Indo-US interim trade agreement too.

Agricultural products have been left out of the draft agreements in both cases because of Indian red lines. It employs large numbers working in, and dependent on, this sector, who cannot be allowed to be adversely affected by foreign, often highly subsidised competition. But for long, this area of possible business was keenly debated between the negotiating teams and took up much time.

As the old structures of the World Trade Organisation (WTO) and similar bodies including those associated with the United Nations (UN), fall into disrepute, ineffectiveness and disuse, these FTAs between countries and groups of countries are gaining massive importance. India as the leader of BRICS at present and with strong ties with the  G-20/21, the Global South and the African Union, is pursuing many other bilateral agreements and cooperation.

The advanced countries, many hampered by low population and sluggish growth, are also looking for stimulation for the technological prowess in their economies, and an alternative to excessive dependence on China. India is an obvious alternative in principle as demonstrated by US giant Apple, though it will have to be built up, just as China once was.

The current European Commission President, German and a woman, Ms Ursula von der Leyen, in the top job as of 2019, recently called the imminent Free Trade Agreement with India the ‘mother of all deals’.

Coming in the backdrop of an aggressively tariffing United States, the prospect of trading freely with nearly 2 billion people representing almost 25% of the world’s GDP, is an exciting prospect indeed.

Long years in the negotiating, the India-EU FTA is likely to be signed on the 27^th of February, after the President of the EU Council, Mr Antonio Costa, and President of the European Commission, Ms Ursula von der Leyen grace the occasion as chief guests on  India’s 77^th  Republic Day on the 26^th of January 2026.

The world has changed a great deal in President Donald Trump’s second term  emphasis on ‘America First’, and added some urgency as well as flexibility to the FTA negotiating process.

 The EU has also just announced this week in Brussels that it will also proceed with a security and defence partnership with India as per the EU Foreign Policy Chief Kaja Kallas. Both France and Germany are negotiating mega deals in fighter aircraft and submarine collaborations presently amongst other things. India is also favoured in the defence and other related and unrelated spheres by the United States, Israel, Russia, Brazil, Spain, Japan,  South Korea, and Britain, with various projects underway and under consideration.

India is also keen to make its own civilian aircraft, ships and tankers, its own computer chips in collaboration with Taiwan, other electronics manufacturing and assembly, rare earth mining and development, nuclear energy, railway and metro modernisation and development, in addition to a massive defence manufacturing push encompassing the army, navy, air force, space, satellite, deep sea,  and intelligence sectors.

From the Indian point of view, an FTA with the EU will boost technology absorption under its aatmanirbhar programmes in diverse fields, double the exports to Europe, lead to greater employment opportunities and exchanges including education and medical science, robotics, drones, UAVs, and progress in IT and AI adoption all to an unprecedented degree.  Indian trained and educated manpower is a strength not only in India but in Europe as well.  The EU-India FTA will be the biggest for India so far, representing a decisive entry into a global value chain.

The prospect of India signing the interim trade agreement with the US, recently endorsed by President Trump at Davos, despite the 50% tariffs imposed on India, will redouble India’s position in the global value chain with many leading American companies choosing to set up development centres in India. These include Google and Amazon. Once the EU-India FTA becomes a reality, the Americans will be keen to proceed with the Indo-US interim trade deal at the earliest too.

India’s multilateral approach has paid good dividends in terms of diversification of its collaborators and markets, and kept its growth trajectory intact and expanding, despite punitive tariffs imposed by the US. These tariffs are likely to be reduced shortly to no more than 15% even as other countries in the littoral who have been granted lower tariff rates compared to India, have not managed to keep pace with it.

It now seems certain that not only will India become the third largest economy in the world after the US and China by 2028 or 2030, but it will also become a middle-income economy with a per capita income of over $ 4,000 despite its massive globe beating population.

India is also edging closer to China in economic matters as its border tensions come under better control. This is important from the point of view of not being allied to any power blocks, but pursuing its strategic and national interest first. This is favoured, of course, by India’s long-term friend and ally Russia for balance, and makes it clear to those inimical to India’s progress that dogma is not a guiding principle for India.  As India strengthens its relationship with countries in West Asia, Greece, Cyprus, Israel, Egypt, Oman, Saudi Arabia, Armenia, Nigeria, Ethiopia, and with those in the Asia-Pacific such as Malaysia, Indonesia, the Philippines, Vietnam and Thailand, it gains rich dividends from its non-discriminatory and independent foreign policy. In time, India will be featured in most geo-political and strategic crossroads as a viable and valuable  partner.  

(1,045 words)

January 22^nd, 2026

For: Firstpost/News18.com

Gautam Mukherjee