The Union Budget 2026-27 prioritizes the MSME and textile sectors with significant allocation hikes and new policy frameworks. The textile sector saw a 25% jump in allocation, while the MSME sector's funding doubled. Key initiatives include making the TReDS (Trade Receivables Discounting System) platform mandatory for all CPSE purchases from MSMEs to ensure timely payments. A ₹10,000 crore SME Growth Fund will be created to support 'future champions.' For textiles, the budget proposes mega textile parks and the Mahatma Gandhi Gram Swaraj initiative to boost rural employment and promote sustainable, globally competitive products.
- TReDS platform usage is now mandatory for CPSEs purchasing from MSMEs to solve payment delays.
- A ₹10,000 crore SME Growth Fund has been established to provide micro-units with risk capital.
- Textile sector allocation increased by 25% to promote labour-intensive growth and exports.
Finance Minister Nirmala Sitharaman introduced significant changes to the taxation of securities and investments in the Union Budget 2026-27. The Securities Transaction Tax (STT) on Futures has been increased from 0.02% to 0.05%, while the STT on Options has been raised to 0.15%. This move is intended to reduce short-term speculative trading and high-frequency trading in the derivatives segment, encouraging retail investors to adopt more measured, long-term investment strategies. Additionally, the budget rationalized taxation on share buybacks, treating them as capital gains, and increased investment limits for non-resident Indians (NRIs).
- STT on Futures increased from 0.02% to 0.05% to discourage excessive speculation.
- STT on Options raised to 0.15% from previous rates of 0.1% and 0.125%.
- The hike aims to curtail retail participation in high-risk derivatives and promote long-term equity investment.
In a strategic move to secure critical mineral supply chains, the Union Budget 2026 announced the establishment of 'Rare Earth Corridors.' These corridors will be set up in mineral-rich states, including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. The initiative aims to promote the mining, processing, research, and manufacturing of critical minerals essential for high-tech devices, electric vehicles, and defense applications. Currently, India depends heavily on China, which controls over 60% of global rare earth production and 92% of refining capacity. This move aligns with the goal of achieving self-reliance in strategic sectors.
- Rare earth corridors will be established in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu.
- The initiative targets self-reliance in critical minerals used in electronics, EVs, and defense.
- China currently dominates 92% of the global rare earth refining capacity and 60% of production.
The 16th Finance Commission (16th FC) has recommended maintaining the vertical tax devolution to States at 41%, a level consistent since 2021. Finance Minister Nirmala Sitharaman announced the government's acceptance of these recommendations in the Budget 2026 speech. Notably, the formula for horizontal distribution was adjusted, resulting in an increased share for five Southern States: Tamil Nadu, Kerala, Andhra Pradesh, Telangana, and Karnataka. The commission also recommended ₹1.4 lakh crore as grants for rural and urban local bodies and disaster management for the fiscal year 2026-27.
- Vertical devolution remains at 41% as per the 16th Finance Commission's recommendations.
- The horizontal distribution formula was tweaked, benefiting Southern States like Tamil Nadu and Karnataka.
- Total grants to states for local bodies and disaster management are set at ₹1.4 lakh crore for FY27.
Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27, emphasizing capital expenditure (capex) to drive medium-term growth. The Centre has budgeted ₹12.2 lakh crore for capex, an 11.5% increase over the revised estimates of 2025-26. The fiscal deficit target is set at 4.3% of GDP, a moderation from the previous year's 4.4%. The budget aims for a debt-to-GDP ratio of 50% by 2031. This strategy prioritizes infrastructure and manufacturing to maintain economic momentum while adhering to a path of fiscal consolidation amidst global uncertainties and geopolitical volatility.
- Capital expenditure is increased to ₹12.2 lakh crore to sustain public infrastructure-led growth.
- The fiscal deficit target for 2026-27 is set at 4.3% of GDP, down from 4.4% in the previous year.
- The government aims to reduce the debt-to-GDP ratio to 50% by 2031, with a leeway of 1% above or below.
India's ₹18,100 crore Production Linked Incentive (PLI) scheme for Advanced Chemistry Cells (ACC) is struggling to meet its targets. Launched in 2021 to reduce reliance on Chinese imports, the scheme aimed for 50 GWh capacity by 2025, but only 1.4 GWh has been commissioned. Major bottlenecks include unrealistic two-year 'gestation periods' for building gigafactories, stringent Domestic Value Addition (DVA) requirements, and a lack of domestic mineral processing facilities for lithium and cobalt. Furthermore, delays in visa approvals for Chinese technical experts have hindered progress, as India currently lacks a skilled workforce for cell manufacturing.
- The ACC PLI scheme is 'technology agnostic,' supporting various chemistries like Lithium-ion and Sodium-ion.
- As of October 2025, only 2.8% of the targeted 50 GWh capacity has been realized.
- The scheme's evaluation criteria prioritized DVA over prior manufacturing experience, favoring novices over established players.
India and the European Union (EU) are negotiating a comprehensive Free Trade Agreement (FTA), often called the 'mother of all deals' due to the combined $24 trillion market size. The deal aims to eliminate duties on over 90% of India's export value, benefiting sectors like textiles, gems, and traditional medicine (AYUSH). However, significant hurdles remain, including the EU's Carbon Border Adjustment Mechanism (CBAM) and India's 'red lines' on sensitive agricultural products like beef and dairy. The agreement also seeks to improve India's investment climate to attract European capital and enhance bilateral services trade.
- The FTA covers a combined market size of approximately ₹2,091.6 lakh crore ($24 trillion).
- The EU is expected to eliminate duties on about 70.4% of tariff lines immediately upon the deal's implementation.
- India has kept sensitive sectors like beef, dairy, and certain agricultural products out of the deal's scope.
The Department of Space faces a stagnant budget, with increasing operational costs eating into R&D and infrastructure funds. While the 2020 reforms aimed to 'unlock' the sector for private players like Skyroot and Agnikul, the transition is in a 'growing pains' phase. The government is leaning on NSIL, ISRO's commercial arm, to bridge the capital gap. Industry bodies like ISpA and SIA-India advocate for classifying the space sector as 'critical infrastructure' and moving towards a 'Department buying from industry' model, similar to NASA, to foster a robust private ecosystem and lower borrowing costs for startups.
- The Department of Space budget is increasingly consumed by operational costs rather than new infrastructure or R&D assets.
- NewSpace India Limited (NSIL) is being positioned to replace tax-funded infrastructure with growth funded by commercial revenue.
- Industry bodies are requesting the space sector be classified as 'critical infrastructure' to lower borrowing costs for private players.
Sri Lanka is proceeding with its International Monetary Fund (IMF) Extended Fund Facility (EFF) programme despite the catastrophic impact of Cyclone Ditwah in late 2025. The cyclone, described as the worst climate shock since the 2004 tsunami, caused massive flooding, landslides, and over 600 deaths. While civil society groups called for renegotiating the IMF deal to prioritize humanitarian aid, President Anura Kumara Dissanayake's government remains committed to fiscal responsibility. The IMF has approved an additional $200 million under its Rapid Financing Instrument to help the island nation manage the dual crisis of economic recovery and disaster relief.
- Cyclone Ditwah caused significant loss of life (649+ deaths) and damage to public infrastructure and livelihoods.
- The Sri Lankan government is balancing IMF-mandated austerity with the need for disaster recovery and climate adaptation.
- The IMF's Rapid Financing Instrument (RFI) provides emergency assistance for balance-of-payments problems.
India's steel sector, accounting for 12% of the country's carbon emissions, is pivotal to meeting its Nationally Determined Contributions (NDC). To reach a production capacity of 400 million tonnes by 2030, the industry must transition from coal-based methods to green hydrogen and renewable energy. The article advocates for a 'Green Steel Taxonomy,' a carbon credit trading scheme, and government support for infrastructure like hydrogen pipelines. Early adoption of low-carbon technologies is essential to remain competitive globally, especially with the EU's Carbon Border Adjustment Mechanism (CBAM) coming into play.
- The steel sector is one of the hardest to decarbonize due to its heavy reliance on coal.
- India's steel production needs to more than triple from 125 million tonnes to 400 million tonnes by 2030.
- The Green Steel Taxonomy and National Green Hydrogen Mission are key policy drivers for the transition.
Chief Economic Adviser V. Anantha Nageswaran presented the Economic Survey 2025-26, charting a framework for a medium-term 'entrepreneur state.' The Survey highlights India's economic stability despite global flux but warns of risks like a 10-20% probability of a global crisis in 2026. It addresses the falling rupee, attributing it to capital flight to AI-developed nations rather than weak fundamentals. Key focus areas include developing 'strategic indispensability' in global supply chains, maintaining fiscal flexibility at the Centre, and cautioning States against fiscal populism and rising revenue deficits.
- The Survey proposes an 'entrepreneur state' model that is risk-taking and agile in policymaking.
- India aims to move from import dependence to 'strategic indispensability' in merchandise supply chains.
- While the Centre halved its fiscal deficit ratio in five years, many States face increasing revenue deficits.
Experts debate whether India should relax curbs on Chinese FDI, which were tightened following the 2020 Galwan Valley clash. Proponents argue that increased FDI could help India integrate into global supply chains, reduce the trade deficit, and boost the manufacturing sector, especially in electronics. However, national security concerns remain paramount, with risks of 'invisible data flows' and potential 'kill switches' in sensitive infrastructure. The discussion highlights that while Chinese components are often essential for Indian exports, a balance must be struck between economic growth and strategic autonomy, ensuring that red lines on security are never crossed.
- FDI curbs on countries sharing a land border with India were introduced in 2020.
- Relaxing curbs could help India capture a larger share of global supply chains and reduce trade deficits.
- National security risks include data privacy and dependence on sensitive technology.
Despite the 2017 National Health Policy's goal to increase government health expenditure to 2.5% of GDP by 2025, current spending remains significantly lower. While allocations by States and Union Territories have increased moderately, the Union government's spending as a percentage of GDP has decreased post-pandemic. The Health and Education Cess, introduced in 2018-19, has not been fully utilized for its intended purpose of expanding health services. The National Health Mission (NHM), a crucial intervention for rural health, has seen stagnant or declining expenditure in real terms over the last several years, highlighting a hyper-centralisation of financial resources.
- National Health Policy 2017 target of 2.5% of GDP for health spending remains unachieved.
- Union government health spending has declined in real terms post-pandemic.
- States bear the primary cost of providing healthcare, with their share of spending increasing.
While India's ethanol-blending programme has saved over ₹1.44 lakh crore in foreign exchange, the Economic Survey 2025-26 warns of its 'non-trivial' impact on food security. The expansion of maize cultivation for ethanol is replacing essential crops like pulses and oilseeds, particularly in states like Maharashtra and Karnataka. This shift could lead to increased imports of edible oils and higher food prices. The Survey highlights a tension between 'Aatmanirbharta' (self-reliance) in energy versus food. It cautions that long-term imbalance might expose domestic food prices to greater volatility during global supply shocks.
- Ethanol blending saved ₹1.44 lakh crore in foreign exchange as of August 2025.
- Maize cultivation for ethanol is displacing pulses and oilseeds in key states.
- The shift in cropping patterns may increase India's dependence on edible oil imports.
The Economic Survey 2025-26 defends the government's decision to replace the MGNREGA with the Viksit Bharat Guarantee for Rozgar and AJEEVIKA Mission (Gram) Act, 2025. The Survey argues that MGNREGA suffered from 'deep structural issues' and that a strong rural economy has reduced dependence on the scheme. Demand for work fell from a pandemic peak of 389.09 crore person-days to 183.77 crore in 2025-26. The new legislation is described as a 'comprehensive legislative reset' designed to address previous shortcomings and align with current rural realities, including rising non-farm employment and improved rural infrastructure.
- MGNREGA is being replaced by the Viksit Bharat Guarantee for Rozgar and AJEEVIKA Mission (Gram) Act, 2025.
- The Survey cites a 53% drop in demand for MGNREGA work since the pandemic peak.
- Structural issues like mismatch between expenditure and physical progress were highlighted.
The Economic Survey 2025-26 suggests a delay in strict fiscal targets for the Centre under the FRBM Act, citing the need for policy flexibility in a volatile geopolitical environment. While the Centre's fiscal deficit is on target to reach 4.4% by the end of the current financial year, the Survey warns that States' finances are worsening. The number of States with a revenue surplus decreased from 19 in 2018-19 to 11 in 2024-25. The Survey emphasizes that while the 3% fiscal deficit target remains important for market trust, a rigid adherence might not be the best approach in the current uncertain global climate.
- Survey suggests delaying strict FRBM fiscal targets for the Centre due to global uncertainty.
- Centre's fiscal deficit peaked at 9.2% in 2020-21 and is targeted at 4.4% for the current year.
- States' collective revenue deficit increased from 0.1% to 0.7% of GDP over five years.
The global political and economic system, once defined by free trade and liberal values, is shifting toward mercantilism—where trade is an instrument of state power. This transition is marked by a return to bilateral negotiations and the weakening of multilateral institutions. For India, this presents a significant challenge as it has 'squandered' the opportunity to convert its demographic dividend into productive capacity over the last 15 years. To survive in this new order, India needs stronger state capability, social cohesion, and a social contract committed to sharing growth more evenly, rather than relying solely on rhetoric of being a 'Vishwaguru'.
- Globalisation is being replaced by a mercantilist system where surpluses are strength and deficits are weakness.
- Multilateral institutions are failing to address global challenges like climate change and illicit financial flows.
- India's social pyramid remains stratified with a large powerless base supporting a narrow apex.
The 2nd India-Arab Foreign Ministers' Meeting in Delhi underscores the deepening partnership between India and the 22-member Arab League. Bilateral trade currently exceeds $240 billion, with the UAE and Saudi Arabia being key partners. Energy security remains a pillar, as the region provides 60% of India's crude oil and 70% of its natural gas. The partnership has expanded into strategic areas, including defense agreements, maritime security under the SAGAR initiative, and digital infrastructure like the RuPay card launch in the UAE. Both sides are collaborating on counter-terrorism and the India-Middle East-Europe Economic Corridor (IMEC) to ensure regional prosperity.
- Bilateral trade between India and the Arab League stands at over $240 billion.
- The Arab League (LAS) was formally established in Cairo in 1945 with seven members.
- India receives 60% of its crude oil and 70% of its natural gas from the Arab region.
This analysis highlights the growing fiscal strain on Indian States due to inadequate Central tax devolution. Despite the 15th Finance Commission's 41% share recommendation, the effective flow is eroded by the Centre's increasing use of cesses and surcharges, which remain outside the divisible pool. Consequently, States are increasingly relying on State Development Loans (SDLs) to fund routine expenditures and welfare schemes. In 2024-25, SDLs accounted for 35% of Tamil Nadu's and 26% of Maharashtra's total revenue receipts. The editorial argues for bringing cesses into the divisible pool and reworking horizontal devolution criteria to give greater weight to tax effort and efficiency.
- States are increasingly dependent on State Development Loans (SDLs) for day-to-day spending needs.
- Cesses and surcharges are excluded from the divisible pool, reducing effective devolution to States.
- The 15th Finance Commission fixed the States' share at 41% of the divisible pool.
The Economic Survey 2025-26 presents a positive outlook for India's domestic economy, raising the medium-term growth forecast to 7% from 6.5%. However, it warns of a 'darker world' with a 10-20% chance of a global financial crisis more severe than 2008. Key drivers for India include improved labor participation and efficiency in production factors. The Survey outlines three global scenarios: a best-case 'business as in 2025,' a 'multipolar breakdown,' and a worst-case scenario involving a major correction in AI-infrastructure investments. India faces specific risks from disrupted capital flows and rupee volatility, requiring sufficient investor interest and export earnings to cover rising import bills.
- Medium-term growth outlook raised to 7% from 6.5% due to domestic economic strength.
- The Survey identifies a 10-20% probability of a global crisis more severe than the 2008 financial crash.
- India's growth is supported by PLI schemes, FDI liberalization, and logistics reforms.
Xu Feihong, Chinese Ambassador to India, discusses the resilience of the Chinese economy, which saw 5% growth with a GDP exceeding 140 trillion yuan. He highlights a shift from investment-led growth to a model driven by domestic consumption and innovation. Domestic demand contributed 52% to growth in 2025. He addresses 'overcapacity' concerns, stating Chinese products are welcomed for their quality and R&D. Regarding India, he notes a historic trade high of $155.6 billion in 2025 and emphasizes economic complementarity, urging Indian enterprises to leverage platforms like the China International Import Expo to reduce trade deficits.
- China's contribution to global economic growth is expected to reach approximately 30%.
- The Chinese economy is transitioning toward domestic consumption, which now accounts for 52% of its growth.
- China-India trade reached a record high of $155.6 billion in 2025, driven by raw materials and components.
Shashi Tharoor argues that while India has immense tourism potential, it lags behind neighbors like Thailand and Singapore due to gaps in image, infrastructure, and experience. He identifies three main problems: the perception of safety (especially for women), poor infrastructure (connectivity and sanitation), and bureaucratic hurdles. To fix this, he suggests rebranding with targeted narratives, scaling up the 'Adopt a Heritage' scheme, and streamlining visa processes. He emphasizes that tourism is a strategic imperative for job creation, particularly for the unskilled and semi-skilled workforce, and calls for a specialized tourist police force.
- India's tourism is hindered by negative perceptions regarding safety and bureaucratic red tape.
- Infrastructure gaps in 'last-mile connectivity' and basic sanitation need urgent addressing to improve the tourist experience.
- Tourism creates multiple times more jobs than manufacturing for the same amount of investment.
The India-EU Free Trade Agreement (FTA) marks a significant milestone in India's trade diplomacy, showcasing the skill of Indian negotiators. Under the deal, the EU will drop tariffs on 99.5% of Indian exports, while India provides concessions on 97.5% of EU exports. Strategic sectors like dairy and certain agricultural products were excluded to protect domestic interests. A notable compromise was reached on automobiles using a quota-based system to balance domestic protection and luxury imports. However, concerns remain regarding the EU's Carbon Border Adjustment Mechanism (CBAM) and the lengthy translation process required for final implementation.
- The EU will eliminate tariffs on 99.5% of Indian export items immediately upon implementation.
- India successfully excluded strategic agricultural and dairy sectors from the agreement to protect local farmers.
- A quota-based system was adopted for automobiles to protect domestic manufacturers while allowing luxury imports.
The Initial Public Offering (IPO) of Bharat Coking Coal Limited (BCCL), a subsidiary of Coal India, has created capital market history by being oversubscribed 147 times. This success reflects a broader trend where Public Sector Undertakings (PSUs) are being viewed as value-driven, strategically critical enterprises rather than loss-making entities. Over the past 7-8 years, 15 PSEs have listed, raising significant capital and creating shareholder value. The shift is attributed to improved administrative quality, strategic planning, and the government's focus on self-reliance in critical sectors like energy and minerals.
- BCCL's IPO received over 90 lakh applications, the highest ever recorded in India's mainboard IPO market.
- The cumulative market capitalisation of listed PSEs rose from ₹1.4 lakh crore to ₹8.53 lakh crore between 2017 and 2025.
- PSUs are increasingly funding critical missions, such as the National Critical Mineral Mission, through their own resources.