He also shares his views on why the Budget focuses on structural growth rather than short-term consumption, which sectors can benefit from the capex-led strategy, and how foreign investors are reassessing India amid improving global and domestic fundamentals. Edited excerpts –
Was the budget cautious or growth-oriented?
This was clearly a growth-oriented budget, but not in the old-fashioned sense of chasing short-term consumption. The Minister of Finance has deliberately opted for a medium to long-term growth strategy.
The backbone of this budget is the continued commitment to public capital expenditure, industrial policy and strategic sectors, rather than fiscal giveaways.
India has achieved nominal GDP growth above 9% for three years in a row, one of the strongest performances among major economies.
When an economy grows at that pace, the challenge is not to artificially stimulate demand, but to increase production capacity and competitiveness. That is what this budget does by supporting investments in infrastructure, supporting manufacturing, electronics, semiconductors, energy transition and logistics.The message is that India wants to move up the global value chain and not rely solely on domestic consumption. This is how China, South Korea and Taiwan created sustainable prosperity.
Short-term growth is already strong; what matters now is capturing a higher potential growth rate for the next decade. So yes, the budget is growth-oriented, but it is focused on structural growth and not on the main GDP angle for the next two quarters.
Why did the markets react negatively? Was it just STT? What about the India-US deal?
The knee-jerk reaction was caused by two overlapping factors. The first was clearly the STT increase in F&O, which has a direct impact on trading volumes, liquidity and broker profitability. That always scares the market, especially when derivatives dominate daily turnover.
But the second factor was just as important: the budget did not provide any new stimulus for consumption in the short term. Despite income tax rationalization and VAT cuts over the past year, investors were hoping for something incremental to support discretionary demand. Its absence dampened sentiment, especially in the consumer and financial equities sectors.
However, the markets are missing the bigger picture of geopolitics. The India-US trade reset, which follows the India-EU deal, significantly reduces the geopolitical risk premium on Indian assets.
Previously, India had absorbed 50% tariffs and responded by reforming the GST, labor laws, foreign exchange reserve strategy and trade diversification. With rates sharply reduced, the economic costs have disappeared, but the reforms remain.
So the short-term market reaction was technical and sentiment-driven. The strategic context for India has actually improved significantly, especially for foreign capital.
Which sectors will benefit or suffer the most?
The biggest beneficiaries will be sectors that align with India’s investment-led growth cycle. Infrastructure, capital goods, defence, railways, power equipment, construction and logistics will continue to see strong order inflows.
These are multi-year opportunities driven by public capital investment and attracting private investment.
The other big winners are pharmaceuticals, specialty chemicals, electronics, semiconductors, energy transition and rare earth metals.
These sectors are at the intersection of PLI incentives, global supply chain diversification and domestic manufacturing pressures. India is positioning itself as an alternative to China, and not just as a low-cost producer.
On the other hand, consumption-driven sectors – auto, consumer durables, FMCG and durable retail – may come under pressure in the short term as there was no new income stimulus in the budget.
The financial sector may also face sentiment pressure due to high gross government borrowings and the increase in the STT, which affects capital market activity. Structurally, this budget is therefore optimistic about industrial, export-related and industrial developments, while consumption and the market-related financial sector may lag in the short term.
Please share ‘The Good, Bad and Ugly’ of the Budget
The good is undeniable: a continued, credible commitment to public capital spending, long-term industrial policy and the ease of doing business. India is clearly following the East Asian model of building production capacity first and not distributing consumption subsidies.
The bad thing is the optics of high gross market borrowing and the absence of even token consumption support. Even a small relief for the middle class would have helped sentiment without materially damaging fiscal discipline.
The ugly part is the STT increase on equities, especially since there is no compensating reduction in capital gains tax. India is trying to attract long-term domestic and foreign equity capital, but has increased transaction taxes that penalize liquidity, hedging and pricing. This sends a confusing signal to the capital markets.
Overall, the budget is economically strong, but deaf to the market. In the long term, growth and profits will dominate. In the short term, sentiment has taken a hit.
Corporate bond market reforms: a step in the right direction?
Yes, the announced measures are clearly supportive. Improving market functioning, broadening the investor base and relaxing issuance standards will all contribute to deepening the corporate bond market.
But India’s corporate bond market still represents only about 20-25% of GDP, compared to over 70% in developed markets. To truly transform this country, India needs credit enhancement mechanisms, active bond ETFs, a stronger repo market, better bankruptcy resolution and greater participation of insurance and pension funds.
Regulations must also shift from issuance-oriented to liquidity-oriented. Bonds must be traded and not just issued. Without liquidity, pricing is inefficient and risk remains concentrated on bank balance sheets. So this is a good start, but bond markets are built over a decade and not a budget. The direction is good; the journey is long.
How important is the government’s investment of ₹12 lakh crore?
A) This is perhaps the most important macro signal in the budget. For the first time, net market loans are lower than budgeted public investments. This means that the government does not borrow to finance consumption, but to create productive assets. This is an inflection point. Roads, ports, energy, railways, defence, urban infrastructure – these investments have multiplier effects across the economy, displacing private capital and increasing productivity in the long term.
Empirically, India’s investment-led recovery has always been more sustainable than its consumption-led recovery. This investment cycle is already driving double-digit growth in capital goods, cement, steel, construction and logistics. If this continues, it will take India’s potential growth well above 7% for the rest of the decade.
What is FII feedback on India?
A) Foreign investors sold India not because of domestic weakness, but because of external shocks – geopolitics, US tariffs, currency depreciation and global risk sentiment.
Fundamentally, India remains the fastest growing major economy, with low inflation, a manageable fiscal deficit, a strong current account, robust corporate profits and strong domestic equity inflows. Valuations, especially outside the defensive large-cap sectors, are now reasonable.
The India-EU-India-US trade agreements significantly reduce geopolitical risk and currency uncertainty. That’s exactly what global investors were waiting for.
We are already seeing renewed interest in Indian manufacturing, infrastructure, defense and financial services. India’s structural story was never broken; it was only temporarily overshadowed by global politics.
Your opinion on USD/INR?
The rupee’s recent weakness was largely driven by policy and not by the market. When India was hit with a 50% US tariff, allowing the currency to weaken was a rational buffer to protect exporters.
Historically, such episodes are followed by a mean return. Once uncertainty disappears, capital flows return and currencies stabilize or strengthen. Now that the India-US-India-EU trade agreements are in place, much of that uncertainty has disappeared.
Over the medium term, we expect USD/INR to remain within a trading range of 2-3%, reflecting the Indian inflation differential and capital flows.
But over the next 12 months, the balance of risks will tilt towards appreciation rather than depreciation as foreign inflows resume and India’s external position remains strong. India’s macro stability today is much stronger than in previous cycles – and the currency will reflect that.
(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)
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