Our Chapter’s Publications

Global Comparison

Defence Spending:

Key points:

• Top Spender: USA leads with $877B, reflecting its global military presence.
• Efficiency vs. Volume: China invests less per capita but focuses on modernization.
• India’s Strategy: Prioritizes GDP share over absolute spending to balance growth and security.

Additional Insight:

• Emerging Powers: Nations like India and China are focusing on self-reliance and regional security.
• Per Capita Contrast: The USA outpaces others, reflecting its expansive global military reach.
• India’s focus: Regional threats and self-reliance (Make in India).
• USA’s strategy: Global power projection.
• China’s edge: Cost-efficient modernization.

Key Observation:

Rising Asia: India and China steadily increase military budgets, influencing Asia Pacific dynamics.

 

Infrastructure Investment:

Key Insights:

• China’s Dominance: $1.4T, driven by large-scale urbanization and high-speed rail.
• India’s Push: Prioritizing connectivity, 5G rollout, and renewable energy.
• USA’s Green Shift: Major allocations to clean energy and broadband expansion.
• India’s Corridor Strategy: Initiatives like Gati Shakti aim to streamline logistics.

Observations:

• India’s focus: Closing infrastructure gaps, logistics, and rural connectivity.
• China’s scale: Megaprojects and global Belt & Road influence.
• Green Revolution: Both USA and EU heavily invest in clean energy and digitalization.

• 

  Comparison: Infrastructure Investment

Research & Development (R&D) Spending:

Key Insight:

• Innovation Leaders: USA and China lead in deep tech and green energy.
• India’s Challenge: Under 1% of GDP despite strong biotech and space programs.
• China’s AI Focus: Largest AI patent filings globally.
• USA’s Deep Tech: Strong investments in defense, quantum, and biotech.

Observations :

• India’s Potential: Space tech (ISRO) and biotech leadership.
• Global Leaders: USA’s defense focus vs. China’s AI push.
• Innovation Race: China’s rapid R&D growth poses strong competition to the USA.
  

  Comparison: R&D Expenditure

Social Spending:

Key Points :

• India’s Commitment: Major welfare programs but limited per capita impact.
• Global Welfare Focus: Developed nations allocate over 10% of GDP.
• USA’s Social Security: Largest welfare scheme globally.
• India’s Rural Welfare: Focus on healthcare, education, and direct benefit transfers.
• India’s Strategy: Boosting education and health access.
• EU’s Model: Strong social security nets.
  

  Comparison: Social Investment

Tax-to-GDP Ratio:

Key Insights:

• India’s Weakness: 17% tax-to-GDP limits fiscal expansion.
• EU’s Strength: Nearly 40% ensures robust welfare spending.
• India’s Informal Sector: Nearly 50% of GDP remains untaxed.
• USA’s Progressive System: Heavier reliance on direct taxes.
  

  Comparison: Tax to GDP Ratio

Expenditure by Ministries: A 10-Year Analysis

Ministry of Defence:

₹2,58,000 crore → ₹6,81,210 crore (164% increase)

The defense budget has witnessed a substantial rise, driven by the need for modernization, procurement of advanced weaponry, and strengthening indigenous defense manufacturing under the ‘Make in India’ initiative.

Ministry of Steel:

₹8,561 crore → ₹3,362 crore (61% decrease)

The substantial reduction in budget allocation suggests a shift towards privatization and reduced government intervention in the steel sector. This may indicate confidence in the private sector’s ability to sustain and grow the industry independently.

Ministry of Science & Technology:

₹14,472 crore → ₹38,613 crore (167% increase)

The increased funding is directed toward advancing India’s semiconductor and quantum technology sectors, strengthening the National Research Foundation (NRF), and accelerating AI-driven innovation. Significant investments are being made in space exploration through ISRO.

Ministry of Communications:

₹1,50,201 crore → ₹1,08,105 crore (28% decrease)

The budget cut in this sector is primarily attributed to reduced capital infusion in BSNL, reflecting a shift towards operational efficiency and privatization efforts within the telecom industry.

Ministry of Corporate Affairs:

₹1,078 crore (2024-25) → ₹11,561 crore (972% increase)

The sharp rise in allocation is driven by efforts to strengthen corporate governance, streamline compliance processes, and enhance regulatory oversight. A major portion of the budget is likely allocated to bolstering the MCA21 portal with AI-driven automation, improving ease of doing business.

Ministry of External Affairs:

₹25,277 crore → ₹20,517 crore (19% decrease)

The lower allocation may reflect a realignment of diplomatic expenditures, possibly shifting focus to domestic development. The reduction could also indicate a shift towards cost-effective diplomatic engagements and increased reliance on digital diplomacy.

Ministry of Jal Shakti:

₹51,558 crore → ₹99,503 crore (93% increase)

The near-doubling of the budget allocation reflects an urgent focus on water conservation, irrigation projects, and clean drinking water initiatives under the Jal Jeevan Mission. This funding aims to improve rural water supply infrastructure and address water scarcity challenges.

Conclusion:

The 2025-26 budget reflects the government’s strategic shift towards infrastructure, defense, corporate regulation, and technology-driven growth indicating a strong push for modernization, self-reliance, and economic expansion. At the same time, reduced spending in areas like steel, communications, and fertilizers suggests a recalibration of priorities, possibly encouraging greater private sector participation.

 

Behavior of Foreign Investors & Markets Post-Budget

Growth – Boosted Sectors:

Consumer & FMCG, Automobiles, Healthcare, Agriculture, Footwear & Fisheries, Renewable Energy, and Real Estate emerged as key beneficiaries, riding the wave of increased investments and policy support.

Underperforming Sectors:

Infrastructure, Defence, and Railways faced headwinds, grappling with budgetary constraints and shifting government priorities, leading to a downturn in growth momentum.

FDI in Insurance:

A game-changing policy move increased the FDI cap from 74% to 100%, providing a significant boost to private insurers. However, a reduction in tax benefits on select insurance products tempered the sector’s overall appeal in specific segments.

 

Decoding the Budget’s Impact on FII Activity

FII Outflows & Market Impact:

In recent months, FIIs have been on a selling spree, with January 2025 net sales hitting $7.67 billion. Meanwhile, FII equity assets under management (AUM) plunged to an eight month low of $786 billion, underscoring a cautious stance amid global uncertainties.

Global Factors Driving FII Decisions:

FII movements are not solely dictated by domestic policies; global interest rates, currency fluctuations, geopolitical tensions, and comparative economic performance all play a crucial role.

Market Sentiment & Budget Takeaways:

The Union Budget elicited a mixed response, with a notable shift in focus from capital expenditure (capex) to consumption driven growth—a trend mirrored in market reactions.

Looking Ahead:

Monitoring FII investment patterns and sectoral shifts will be crucial in assessing the long-term impact of the budget. While the budget has been viewed as a strategic step toward sustainable growth and capital market development, the real test lies in how effectively it aligns with global economic shifts and investor confidence in the coming months.

While investments in Technology and Consumer & FMCG remain strong, the FII investment trend suggests a sell-off phase over the past few months, possibly due to macroeconomic conditions, policy changes, or global market volatility.

 

Hidden Winner & Losers

Winners : Sectors with Advantages:

1. Green Hydrogen Sector

The National Green Hydrogen Mission receives a significant allocation of Rs 600 crore, doubling the previous year’s Rs 300 crore.

2. Water Infrastructure Sector

The Ministry of Jal Shakti’s allocation has increased significantly to Rs 99,503 crore in 2025 26, nearly doubling from the previous year.

Losers: Sectors with Disadvantages

1. Railway Equipment Manufacturers

Despite expectations, the railway sector saw a decrease in allocation from Rs 2.62 lakh crore to Rs 2.55 lakh crore. This could negatively impact:

• Rolling stock manufacturers like: BEML, Titagarh Rail system Ltd, Alstom India, Jupiter Wagon Ltd and BEML Ltd.
• Signalling and telecommunication equipment providers.
  

  Impact on Railway Equipment Manufacturers

2. Project Implementation Agencies (PIAs)

Despite lower project delays compared to previous years, they remain higher than pre pandemic levels. This suggests:

• Project management consultancies might face reduced fees due to delays.
• Construction companies could see lower profit margins from cost overruns.
  

  Impact on Project Implementation Agencies (PIA)

Unintended Consequences & Hidden Costs in India’s Fiscal Policy Framework

The Indian fiscal ecosystem faces complex trade-offs between stimulating economic growth and managing hidden costs that disproportionately affect middle-class households.

Hidden Tax Burdens on Middle-Income Earners
(Regressive Impacts of Indirect Taxation)

While the Union Budget 2025-26 introduced substantial direct tax relief—raising exemption thresholds to ₹12 lakh—this ostensibly progressive measure masks a structural reliance on indirect taxes. The GST framework has enabled incremental rate hikes on essential goods, with packaged cereals and fuel witnessing 3% and 5% effective rate increases respectively since 2023. Middle-class households allocating 38-42% of income to food, education, and healthcare now face compounded burdens from:

• Cesses on digital services: A 2% health cess on mobile data plans adds ₹1,200-1,800 annually for families reliant on online education
• Customs duty escalations: 22% import levies on electronics inflate device costs by ₹8,000-12,000 per unit
• Fuel tax persistence: Despite global crude price declines, central excise duties remain 18% above pre-pandemic levels, contributing ₹14,200/year to urban household expenses

Infrastructure-Led Inflationary Pressures
(Monetary-Fiscal Policy Disconnect)

Divergent inflation assumptions create risks:

• FY24 saw 160basis-points (bps) gap between Economic Survey (4.2%) and RBI (5.8%) projections, forcing ₹21,000 crore in unplanned borrowing.
• Current crude price assumptions ($75/barrel) ignore OPEC+ supply constraints and Middle East volatility, with $5 increases potentially adding 45bps to the Consumer Price Index (CPI).

Bureaucratic Inertia and Implementation Failures
(Audit-Identified Execution Bottlenecks)

CAG (Comptroller And Auditor General) reports reveal systemic delays across 68% of major projects:

Conclusion – How we might mitigate this:

1.Transparent Tax Incidence Scoring:

Mandate GST Council to publish household-level impact assessments pre-implementation, which helps as:
a. Revealing hidden burdens: It would quantify the cumulative effect of both direct and indirect tax changes on household budgets, exposing regressive shifts that might otherwise go unnoticed.
b. Informing policy decisions: By mandating the GST Council to publish household-level impact assessments before implementation, policymakers could make more informed decisions that consider the full spectrum of tax incidence.

2. Sectoral Inflation Task Forces:

Embed RBI officials in infrastructure ministries for real time input price monitoring:
a. Bridging Macro-Micro Gaps-Real-Time Monitoring of Input Costs
i. Sectoral Inflation Task Forces (SITFs) institutionalize cross-agency coordination between monetary authorities and infrastructure ministries to track input price volatility. For instance, during the Bharatmala highway expansion, cement prices surged 18% annually due to supply-demand mismatches that RBI models failed to anticipate. SITFs would:
ii. Embed RBI economists in steel, cement, and logistics ministries to develop dynamic pricing models
iii. Create early warning systems for commodity shocks (e.g., LME copper futures indicating 15% price hikes)
iv. Enable preemptive fiscal adjustments like variable GST rates on construction materials
b. Mitigating Monetary-Fiscal Disconnects
i. The FY24 160bps gap between RBI and budget inflation assumptions stemmed from divergent crude oil price projections ($75 vs. $82/barrel). SITFs would:
ii. Align fiscal assumptions with RBI’s Quarterly Projection Model parameters
iii. Introduce sector-specific inflation buffers in budget estimates (e.g., 5% contingency for steel-intensive projects)
c. Case Example: Steel Price Stabilization
With 28MT steel demand exceeding 21MT domestic capacity, SITFs could:
i. Trigger anti-hoarding measures when inventories drop below 45-day coverage
ii. Accelerate approvals for secondary steel plants through linked bureaucratic metrics
iii. Negotiate rupee-denominated import contracts during rupee depreciation cycles.

 

References

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22. http://equitymaster.com/detail.asp?date=10%2F13%2F2024&story=1&title=Top 10-Water-Infra Stocks-in-India-Ranked-by-Order-Book Value
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