Arun Kumar Singh
India and European Union agreed on historic Free Trade Agreement on 27thJanuary 2026. The Union Budget was presented four days later on 1st February 2026. Five days later on 6th February India and the US agreed on a framework of interim trade agreement. Though the final agreement might be finalised by mid-March the suspense over the deal which was hanging fire for last one year is over.
We are living in tumultuous times when trade and technology have been weaponised and old rule-based order is falling apart. We have Donald Trump, President of US who wants to solve all global issues using tariffs. China, on the other hand has blackmailed the US, India and other countries over access to critical minerals and rare earth magnets.
Apart from tackling these challenges relating to trade we also face adversaries on the western and northern sides. Though we halted hostilities with Pakistan in four days of launching Operation Sindoor this skirmish has alerted us to the external threats including the threat of collusive attack by Pakistan and China. We saw how China provided intelligence support apart from the weapons to its allies-weather friend Pakistan.
Given this geopolitical and strategic scenario India is bound to divert substantial resources towards defence preparedness. We should see a 15% jump in defence allocation (Rs 7.85 lakh crores) in this budget in that context. Nearly 22% of increase is under the capital head amounting to Rs 2.19 lakh crores. Out of this Rs 1.85 lakh crores (24% over previous year’s) is allocated for capital acquisition (next generation fighter aircrafts, advanced weapons, ships, submarines, UAVs, drones etc.). Around 75% of capital acquisition has been reserved for domestic industries. DRDO budget allocation increased to Rs 29,100 crores from Rs 26, 816 RE of last year. About 25% of Defence R&D budget has been opened to industry, startups and academia. 15 DRDO-Industry- Academia Centres of Excellence have been established.
The Free Trade Agreements which have either been signed or going to be finalised open up huge opportunities for our industries to diversify their markets, modernise their operations by infusion of new technologies and seek foreign collaborations to grow. India has a unique opportunity to invite foreign investors who want to de-risk from China by setting up supply chains in India and other Asian countries. Opening of huge markets for traditional goods like textiles and apparel, leather and footwear, gems and jewellery as well as marine products will generate lakhs of jobs. Mega textile parks have been proposed for manufacturing technical textiles and value-added products. The budget has visualised these opportunities.
For further development of semiconductors India Semiconductor Mission 2.0 has been launched with an allocation of Rs 10,000 crore. To deepen domestic value chain and boost electronic manufacturing Electronic Components Manufacturing Scheme has increased allocation from Rs 22919 crore to Rs 40,000 crores. India Semiconductor Mission 2.0 has been launched to secure technology supply chain. To make India a hub for biological and biosimilars, a dedicated Rs 5000 crore 5-year initiative has been launched named Biopharma SHAKTI.
The budget also focuses on promoting deep-tech and AI. Foreign companies who can provide cloud services using Indian data centres have been provided tax holiday till 2047. This is aimed at turning India into a global data hub. Bharat-VISTAAR (Virtually Integrated Scheme to Access Agricultural Resources) tool will be launched. This multi-lingual platform will integrate Agri stack and ICAR data to provide customised advisory to farmers. To promote women empowerment and entrepreneurial capacity among them SHE Marts (Self Help Enterprise Mart) will be set up within cluster federations.
Rare Earth and critical minerals corridor will be set up running through Odisha, Andhra Pradesh, Tamil Nadu and Kerala for mining, processing and manufacturing Rare Earth Permanent Magnets.
The budget has given incentives to manufacturing sophisticated construction and infrastructure equipment. Rs 10,000 crore has been allocated for manufacture of containers. As MSME sector is the largest contributor to export the budget has proposed Rs 10,000 crore SME Growth Fund aimed at transforming high-potential MSMEs into ‘champion enterprises.’ For easing liquidity to MSMEs supplying to Central PSUs the latter have been mandated to get linked with TReDS (Trade Receivable Discounting System), with credit guarantee support CGSE. Hi-tech Tool Rooms by CPSEs will be set up. To assist MSMEs to cope with compliance burden new cadre of Corporate Mitras will work in Tier II and Tier III cities.
Infrastructure development has been visualised as Growth Connectors. To realise this objective 7 high speed rail corridors including Mumbai-Pune and Delhi-Varanasi have been proposed. An ambitious plan has been laid out in the budget to harness untapped potential of inland waterways and coastal shipping. Twenty new inland waterways have been proposed in the budget. The target is to raise their share in total freight from 6% to 12% by 2047. To give a push to urbanisation City Economic Regions (CERs) have been proposed to be implemented in challenge mode.
Skill development in new areas has been focused in the budget. Realising the potential of ‘orange economy’ the government will support the Indian Institute of Creative Technologies, Mumbai in setting up “Animation, Visual Effects, Gaming and Comics (AVGC) content creation labs in 15000 secondary schools and 500 colleges. This will help bring out creative talent among youth and create new employment avenues. The budget has proposed establishment of five regional medical hubs in partnership with the private sector to boost India’s status as wellness and medical tourism destination with integrated facilities including AYUSH Centres, diagnostic, post-care and rehabilitation services. A proposal to train 1.5 lakh persons as caregivers to take care of senior citizens has been made as part of development of eco-system for geriatric care.
Thus, we see that the Union budget signals a decisive shift from traditional consumption-driven or populist budgeting towards a long-term, reform-led and capital expenditure focused approach. The capital expenditure allocation is increased by 11% to Rs 12.2 lakh crore. Continuing its march to fiscal consolidation the has Fiscal deficit target has become 4.3% of GDP in FY27, down from 4.4% in the revised estimates of FY26. The government aims to bring the debt-to-GDP ratio down to 55.6% in FY27, with medium term target of 50+_1% by 2030.
Overall, it is a futuristic budget that will help prepare the economy to take on challenges of future as well as capitalise on the opportunities available after FTAs come into effect.
