Rare Earths and Data Centres: India Boosts Local Industry Amid Rising Global Tensions
India is making significant strides in its local industry as it navigates increased global tensions, particularly in the sectors of rare earths and data centres. The recent budget presented by Finance Minister Nirmala Sitharaman emphasizes this push while also maintaining fiscal discipline.
Economic Outlook and Budget Highlights
According to India’s Economic Survey, the country anticipates a solid 7.4% GDP growth for the current financial year. However, projections suggest a slight deceleration next year due to the impact of US tariffs on Indian exports. The budget reveals a commitment to fiscal restraint, targeting a lower deficit while boosting domestic manufacturing. Here are five key takeaways from the budget announcements:
– Record Infrastructure Spending: Infrastructure development remains a cornerstone of the Modi government’s agenda, with a 9% increase in capital spending, raising the target to 12.2 trillion rupees ($133.1 billion; £105 billion). Defence spending has also surged by over 20% amidst escalating global geopolitical tensions.
– Manufacturing Focus on Strategic Sectors: The government plans to enhance manufacturing in seven critical sectors, including semiconductors, textiles, and notably, rare earths. Dedicated corridors for rare earth minerals will be established in states like Tamil Nadu, Kerala, Andhra Pradesh, and Odisha. This initiative aligns with a 73 billion rupee scheme introduced last November.
– Incentives for Data Centre Investments: A second semiconductor mission has been launched with an outlay of $436 million, aimed at producing vital equipment and designing complete intellectual property. Additionally, a tax holiday until 2047 is being proposed for foreign cloud companies investing in data centres. Global giants like Google have already taken notice, announcing a $15 billion investment in a facility in southern India.
– Export Competitiveness and New Tax Policies: To counteract the effects of US tariffs, India aims to raise limits on duty-free inputs for key export sectors. Notably, customs duty exemptions have been implemented for materials used in lithium-ion battery manufacturing. However, no new personal income tax cuts have been introduced, maintaining the previous year’s exemptions for earnings up to 1.2 million rupees.
– Fiscal Restraint Goals: Starting in April 2026, the government will prioritize the overall debt-to-GDP ratio over a strict yearly fiscal deficit. The goal is to reduce this ratio from 56% to 50% by 2030-31, allowing for more adaptable spending on capital projects. The estimated debt-to-GDP ratio for the upcoming year is 55.6%, with a slight decrease in fiscal deficit from 4.4% to 4.3% of GDP.
Market Reactions
Despite the positive signals regarding fiscal discipline, the financial markets reacted negatively to an increase in the Securities Transaction Tax (STT) on futures and options trading. This rise could affect trading activities, as noted by experts who worry it may slow down derivative market volumes.
Conclusion
As global tensions rise, India’s focus on rare earths and data centres underscores its commitment to bolstering local industries. The latest budget reflects a fine balance between promoting growth and maintaining fiscal discipline, setting the stage for a resilient economy. By fostering an environment attractive for investment, India aims not just to navigate current challenges but to emerge stronger and more self-reliant in the global arena.