India's Budget on 1 February indicates that the country will continue on its rapid trajectory in becoming the world's biggest economy, with the key takeaway being the government's emphasis on increased growth by focusing on investment in infrastructure and job creation, says David Cornell, managing director of Ocean Dial Asset Management, manager of London-listed India Capital Growth and UCITS strategy Gateway to India.

A 24% increase in allocation to government capital expenditure and 50-year interest-free loans to the States for infrastructure spending have been designed to "crowd in" the private sector. This will be at the heart of India's expansion, with the capitalised and cleaner private banking system that exists today in a strong position to support this approach.

This combines with Modi's ongoing commitment to reducing fiscal deficits, which is projected to fall to 6.4%. What is surprising however is that increases in welfare budget have been overlooked in favour of capital expenditure; a bold decision given important state elections being contested throughout the year. Nominal GDP growth expectations are modest at 11.4%, however, this takes into account the possibility of an uncertain global environment and leaves room for upside surprises.

Overall, the budget mostly took on a conservative approach avoiding any political point-scoring ahead of the state elections. However, regarding the future of India's economy, this was anything but passive, with emphasis on sectors such as domestic manufacturing, solar energy, the adoption of a digital currency, greater usage of AI, and research into genomics all signs of a progressive government that is committed to revitalising the economy.

The sectors that are likely to benefit the most are:
• Capital goods
• Cement
• Banks

And those that are likely to lose:
• Rural consumption
• Housing
• SME

Digital Currency

Yesterday's announcement regarding the digital currency is an indication that India is following global practice in actively researching and piloting a Central Bank Digital Currency (CBDC). CBDC's are considered a viable response by regulators to the rapid growth of crypto, with benefits including:
• Removing the need for "private" currencies, and therefore tightening regulation.
• The introduction of a more acceptable form of currency than traditional paper/polymer.
• A CBDC will remove the delays in transferring through an interbank market - both globally and domestically.