Budget
Announcements- Good For Its Capex Increase, Chip Manufacturing, High-Speed Rail
Corridors, Sentiment Dampener For Stock Markets
The Budget
presentation on Sunday February 1st, 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
1st, 2026
For:
Firstpost/News18.com
Gautam
Mukherjee
