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Union Budget 2026-27 & India- EU FTA: A Comprehensive Analysis
Union Budget 2026-27 on February 1, followed by the ground breaking conclusion of the India-EU Free Trade Agreement (FTA), marks a definitive pivot in India's journey toward a $7 Trillion economy by 2030.
Written by : Surendra Jauhari
Wealth+ Advisers www.welathplys.com
Counter-Cyclical Buffer Against Global Volatility
New Delhi has successfully integrated its domestic fiscal policy with its global trade ambitions to create a "Counter-Cyclical Buffer" against global volatility.
Three Pillars of New Fiscal Policy
Economic Growth : Scaling manufacturing in eight main sectors
Capacity Building : Fulfilling the aspiration of 1.45 billion population.
Universal Access : Ensuring eqitable opportunities to every region.
Key Points Budget 2026
Spending & Capital Allocation Sectoral Allocations
Spending growth 49.6 lakhs crore in FY26 (6.7%) to 53.6 lakh crore in FY27 up by 7.7% YOY growth.
Capital spending picks up from 11 lakh crore (4.2%) to 12.2 lakh crore in FY27 (11.5%) YOY growth
Fiscal deficit stable and debt trending lowering from FY25 4.8%
deficit of GDP to 4.3% deficit of GDP by FY27 lowering to 55.6% of debt to GDP, signaling to global rating agencies that India is "spending but saving."
Big money for defence acquisitions increased by 15% from 6.81
lakh crore on FY26 to 7.85 Lakh crore in FY27 and that is 2% of GDP. Allocation is 14.7% of budget. Defence stocks fell due to not making any defence-specific policy announcement in the Budget 2026 speech.
Road transport and highways got 3.10 lakh crore, 5.8% of budget Railways got 2.81 lakh crore, 5.3% of budget
Home Affairs got 2.55 lakh crore 5.3% of budget
Consumer affairs, food and public distribution 2.40 lakh crore, 4.5% of budget
Rural development gets 1.97 lakh crore, 3.3% of budget
Chemical and fertilizers gets 1.77 lakh crore, 3.3% of budget Agriculture gets 1.41 lakh crore, 2.6% of budget
Education gets 1.39 lakh crore, 2.6% of budget
Fiscal Prudence: Spending But Saving
Despite a higher-than-expected borrowing target of ₹17.2 trillion— which caused a minor tremor in the bond markets—the government maintained its "Fiscal Prudence" badge by pegging the deficit at 4.3% of GDP. The long-term roadmap now aims for a 55.6% Debt-to-GDP ratio by next year, signalling to global rating agencies that India is "spending but saving."
Macroeconomic Foundation & Fiscal Discipline
The budget maintains a delicate balance between driving growth and ensuring long-term financial stability.
GDP & Tax Trajectory
The government targets a nominal GDP growth of 10% YoY for FY27, a significant acceleration from the 8% seen in FY26. Net tax revenues are projected to grow by 7.2%
Fiscal Consolidation The Gross Fiscal Deficit (GFD) is pegged at 4.3% of GDP by FY27. The long-term objective is to reach a Debt- to-GDP ratio of 50% by FY31.
Borrowing & Liquidity Gross market borrowings are set at ₹17.2 trillion, notably higher than the market expectation of ₹16.5 trillion. Additionally, a new T-Bill issuance of ₹1.3 trillion has been introduced for FY27. This increased supply of government paper is expected to exert upward pressure on bond yields in the near term.
Divestment Strategy The divestment target has been aggressively raised to ₹800 billion (up from ₹340 billion in FY26).
Infrastructure: The ₹12.2 Trillion Multiplier
The budget gives the massive ₹12.22 lakh crore Capex outlay.
Railway gets freight and bullet train corridors
Seven new corridors were announced, including Mumbai-Pune, Pune-Hyderabad, and Delhi- Varanasi. These aren't just transport lines; they are being designed as "Economic Growth Connectors."
Rare Earth Corridors Bold move to challenge China's dominance, India is setting up
dedicated corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu.
This will secure the supply of rare earth magnets critical for the EV and aerospace industries. Rare Earth corridors will significantly strengthen domestic capabilities and reduce import dependencies.
Communication & Power
With a 95% increase in the communication budget, the focus has shifted to Bharat Net (₹200 billion) and the 6G rollout.
Manufacturing 2.0: Semiconductors and Biopharma SHAKTI
Semiconductor Mission 2.0
Boost for chips and components plan- Semiconductor mission 2.0 focus shift to equipment, IT and supply chains, has outlay for the electronic component manufacturing scheme (ECMS) 40,000 crore and are expected to boost domestic production of equipment and materials, to make India stronger place for global supply chains.
Electronics Outlay
Hiked to ₹400 billion, specifically focusing on high-end component manufacturing to
leverage the new EU trade corridors. Biopharma SHAKTI
A ₹10000 crore established to turn India into a global powerhouse for biologics and biosimilars.
Building Bharat: Rural Transformation
Mission Gram Plan, expenditure on rural water, housing and roads increased from 22612 crore in FY25 to 67670 crores by FY27.
Pradhan Mantri Awas Yojna
Rural housing allocation increased from 32327 crore in FY25 to 54917 crore by FY27.
Foundation Support: Focus on Rural India and Schemes
Focus on rural development with 2.7 lakh crore support which is 5% budget
Rural Jobs -
MGNREGA/GRAM G - Allocation has been increased 85834 crore in FY25 to 125693 crore by FY27.
Kisaan Samman : Allocated 63500 crore for FY27.
Electronics Duty Relief : Budget also eased the pressure on television, micro waves and other electronics by making zero customs duty on key important components.
The Digital & Services Pivot: Data Centres & GCCs
Data Centre Investments
Big shift for data centre investments & 20 years long tax holidays.
Increases budget from 300 crores to 2000 crores for the Safe Harbour threshold for IT service providers, safe harbour is a legal provision that support individuals & business to reduce & eliminate liability, penalties, tax cases & scrutiny, if they meet specific, pre- defined conditions.
STT: Securities Transaction Tax
To curb speculative excess, the Securities Transaction Tax (STT) on options was hiked to 0.15%. While this hit derivative volumes on Monday morning, institutional investors view it as a positive step toward promoting long- term equity holding.
FDI Liberalization
Persons Residing Outside India (PROI) can now invest up to 10% individually and 24% aggregately in listed Indian companies via the Portfolio Investment Scheme.
Agriculture & Social Safety Nets
The budget hasn't forgotten the "Real India":
Bharat-Vistaar : Multi-language AI advisory platform for farmers, integrating real-time weather, soil data, and ICAR research.
Viksit Bharat Guarantee : A new rural employment scheme with a ₹956 billion allocation, ensuring that the rural "Rozgar" (employment) engine keeps firing even as MNREGA is streamlined.
MSME Support : A ₹100 billion SME Growth Fund was established to create "Champion SMEs" through equity support and liquidity measures like TReDS.
Trade Receivables Discounting System (TREDs) has eased and improve cash flows and shorter receivable cycles for small and medium sized companies. Credit guarantee support mechanism for invoice discounting, eased working capital stress and this has enabled banks to lend with sharper risk.
Investing with the mindset of caring:
Education
Funds for education increased from 110736 crore in FY25 to 139289 crore for FY27, which is 0.4% of GDP
Share of primary and higher education is 60:40 ratio respectively.
Health
Funds for health increased from 88353 crore in FY25 to 104599 crore by FY27 0.27% of GDP
Allocation for Ayushman Bharat allocated 9500 crore which was 7179 in FY25.
The India-EU FTA: The "Mother of All Deals"
The signing of the India-EU FTA in late January, just days before the budget, has effectively doubled the impact of domestic reforms.
The Sectoral Surge
Indian Textiles, Leather, and Gems will now enter the EU market at zero duty, a massive jump from the current 4%–26% range. Expected to boost and generate an additional $35 billion in exports.
European Gains
In return, India will lower tariffs on luxury European cars (from 110% to 10% under a quota system) and Wines (falling from 150% eventually down to 20%).
Strategic Offset
With the withdrawal of GSP (Generalized System of Preferences) benefits for India as of January 1, 2026, this FTA is seen as a "Strategic Lifeline" that allows India to navigate potential trade friction with the United States.
Conclusion: The Integrated Outlook
The convergence of the Union Budget and the India-EU FTA represents a masterstroke of economic synchronization. While the short-term challenge remains the spike in bond yields and the "legal scrubbing" of the trade deal, the structural story for India in 2026 is one of Resilience and Expansion. For global investors, India is no longer just a "consumption story"—it is now a "global manufacturing and digital services pole."
Finally India is on the path of Sunrise. Eight sectors renewal energy, electronics, green hydrogen, semiconductor, decarbonisation, battery storage, smart infrastructure and data centres- these are the main engines for next generation of growth.
Risk Factors and Disclaimer Risk arising from the investment objective, investment approach and asset allocation: Equities as an asset class carry a higher risk in comparison to debt. While risk cannot be totally eliminated, it can be mitigated through a well-designed Investment Approach. Wealth+ Advisers seek to mitigate risk and deliver superior returns through research-based investing. However, this objective may not be fully achieved due to various reasons such as unfavourable market movements, misjudgement by the advisor, adverse political or economic developments etc. The investment strategy is run with an objective to achieve reasonable returns consistently. Given this background the investor investing in the investment strategy faces the following risks 1. Political, economic and / or related risks The Asset Value of the portfolio and the liquidity of the shares may be affected by changes in government policy, taxation, interest rates, social and religious instability and political, economic or other developments in or affecting India. 2.
Industry risk The value of shares of companies in a particular industry may be affected due to factors affecting the industry like changes in government policy on duties, FDI or a foreign country, which is a big market for the industry, may impose restrictions on import etc. 3. The Indian Securities Market The Indian stock markets in the past experienced substantial price volatility and no assurance can be given that such volatility will not occur in future. Actual market trend may be in variance with anticipated trends hence, the decisions of the Portfolio Manager may not be always profitable. 4. Liquidity Risk Some stocks that the investor might be invested in might not be highly liquid. Though it will be the investment strategy service providers endeavor to restrict investments in less liquid stocks to a lower limit, there is an exposure of liquidity risk to the investor. Disclaimer: Wealth+ Advisers director Mr. Surendra Jauhari who is SEBI registered investment advisor bearing SEBI registration no: INA000021474 The factual information mentioned herein above are relied on sources available in public domain.. Accordingly, no representative or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this material. Client can write to us using our dedicated email: sup port@wealthply s.com
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