RBI can make important announcements in its policy to support the budget and government.
In a few days, the country’s Finance Minister Nirmala Sitharaman will present Budget 2026 on the table of Parliament. This time the budget is going to be quite different in many ways. This time the budget faces not only local challenges, but also global challenges. Which is completely different from the Covid period and the Russia and Ukraine war. This time Trump’s tariff is in front of the budget and Nirmala Sitharaman.
This time the country is faced with constantly changing global trade equations. Also, in a few months, one of the most important elections in the country is the Bengal Assembly elections. Considering all these things, this time’s budget is going to be the most important budget of the last few years. In such a situation, pre-budget comments of many people are also coming to the fore.
Recently, Jaspreet Singh Arora, Chief Investment Officer, Equantis Wealth Advisory Services, said in an interview to Money Control that he is hopeful that this time there is a possibility of 11-13 percent growth in government expenditure in the budget. Also, better incentives can be given to AI and semiconductors. So that the local manufacturing sector can be boosted. Apart from this, emerging industries like defence, electronics, AI, nuclear energy and critical minerals will be promoted through PLI schemes.
According to him, the Reserve Bank of India (RBI) is more likely to give priority to liquidity support and interest rate transmission rather than direct monetary easing in the February policy. He said that recent steps are already indicating in this direction. Let us also tell you what kind of opinion he has given regarding the budget, infrastructure and RBI support in the interview given to Money Control?
What is the biggest challenge for the global economy?
He said during the interview that President Trump’s uncertain and aggressive tariff policies and geopolitical ambitions are the biggest short-term threat to stock markets, causing widespread global trade disruptions and reducing investor confidence. Due to this, continuous selling has started by Financial and Economic Investors (FIIs), due to which more than Rs 40,000 crore has been sold from Indian markets in January 2026 alone.
He said this outflow has been further exacerbated by the rupee falling to a record low of 91.97/USD, which has increased importers’ hedging costs, blurred earnings visibility and accelerated capital flight from Indian companies. The interaction of tariff concerns and currency weakness creates a vicious cycle, hindering new investment and increasing volatility. Domestic foreign investment (DII) inflows provide a stabilizing factor for income growth as well, although its sustainability remains an important monitoring matter.
Will there be a budget linked to reforms?
He said in the media report that this time’s budget will be related to reforms. However, this will be within strict fiscal limits. The government is expected to put fiscal consolidation on hold (keeping the deficit close to 4.4% of GDP) and increase capex by 10-15%. Which includes more allocation for defence, infra, energy transition, electronics and critical minerals.
Apart from fiscal mathematics, the focus of reforms is likely to be on deregulation, ease of doing business, disinvestment of government companies, loan guarantee schemes and expansion of public sector investment (PLI) in sectors like artificial intelligence, robotics and semiconductors. The emphasis is on attracting private investment rather than announcing big tax breaks.
Which sectors can be focused on?
He said India is entering FY 2027 with a strong growth rate – real GDP growth at the end of FY 2026 stood at 7.4% and inflation remained stable at around 2 percent. We are hoping for a “Continuity Budget” that builds on policies that already work. This means an increase in capital expenditure from 11 per cent to 13 per cent and an emphasis on making India a powerhouse in the manufacturing sector through better incentives for AI and semiconductors.
Apart from this, emerging industries like defence, electronics, AI, nuclear energy and critical minerals are also being promoted through PLI schemes. The government’s priority is to reduce the debt-to-GDP ratio from the current 81 per cent to about 50 per cent by FY 2031, as well as bring the fiscal deficit to 4.4 per cent of GDP by FY 2027.
Will the budget break the tariff?
Markets are not expecting any major economic stimulus this year, rather we are expecting more targeted relief. This budget will likely offer tax breaks and incentives for MSMEs and export-dependent sectors, which are feeling pressured by Trump’s tariffs. However, the budget is only one part of a broader equation. To protect domestic businesses from the tariff war, the government is already adopting a different strategy.
This includes rapidly pursuing trade deals with partners like Britain and Oman and finalizing the much-awaited European Union deal, often called the “mother of all trade deals,” to reduce our dependence on the US. Additionally, Export Promotion Mission (outlay of Rs 25,060 crore) is being launched to mitigate the impact of tariffs.
Will the Federal Reserve’s decisions have any impact?
He said the Federal Reserve’s current stance reflects growing confidence in the stable growth potential of the US economy, even though inflation remains slightly above the 2 percent target. Because growth remains so strong, the downward pressure on prices is not easing as quickly as some had expected, and projections suggest this could last until 2028.
Additionally, the job market is proving extremely strong, and the unemployment rate is likely to remain stable at around 4.5 percent. Although this means that an immediate interest rate cut is unlikely, most experts are still expecting at least two interest rate cuts by the end of this year, when inflation will start to decline.
RBI’s role in the budget
Arora said in the interview that the RBI is more likely to give priority to liquidity support and interest rate transmission rather than direct monetary easing in its February policy. Recent steps already point in this direction. Current market estimates point to a final cut of only 25 basis points, and limited gains are expected from further tapering. Despite a cumulative reduction of approximately 125 bp, the 10-year G-seq yield barely declined, indicating weak transmission.
Over the past few weeks, the RBI has intensified OMOs and conducted auctions of VRRs and VRRRs to address the liquidity crunch in the system. It has also used the USD/INR swap window to meet the liquidity shortage caused by interventions in the foreign exchange market. Meanwhile, India’s 10-year G-Sec yields remain stable around 6.6-6.7%.
Despite frequent cuts in policy rates, there has been a modest improvement, which reflects weak transmission and huge supply of government bonds. Given the huge future borrowing by central and state governments (about Rs 29.7 trillion at the end of FY2027), the RBI’s most effective tools are likely to be liquidity injections, OMOs and corridor fine-tuning, with a modest, final rate cut only as a secondary option.