AI Panic, Budget Shocks, And India’s High-Stakes Bet On The US
From the AI sell-off to a landmark trade deal with Donald Trump, New Delhi is trading fiscal concessions for a closer American alliance, while leaving domestic R&D and social unity behind.
The Gist
The recent week saw significant events impacting the Indian economy and tech sector.
- The 2026-27 Budget reduced government expenditure to 13.6% of GDP, with increased securities transaction taxes causing market declines.
- The announcement of a major Indo-US trade deal aims to cut tariffs, but has faced criticism regarding India's sovereignty and agricultural sectors.
- A sell-off in tech stocks was triggered by Anthropic's new AI offerings, raising concerns about the future of software companies.
The biggest events of the last week were, of course, the 2026-27 Budget, the announcement of the long-awaited Indo-US trade deal, and the big tech sell-off, following Artificial Intelligence major Anthropic’s announcement of its switch from selling intelligence to selling work, in the form of Claude Cowork, and its speicalised plugins for legal, data processing and sales and customer relations work.
The plugins, fear investors, would make many software companies and their products and software as a service (SaaS) offerings redundant. This has induced large-scale selling of assorted tech company shares around the world, taking down Indian tech stocks along the way.
This, in all probability, is an overreaction. Indian IT-enabled operations might stand to be disrupted by Claude Cowork’s new capabilities, but nowhere has Anthropic claimed that it would be able to implement the adoption of a complex Enterprise Resource Planning software for a large business, do engineering R&D, or carry out consulting and digital transformation.
Sure, AI might be good at spotting and fixing bugs in legacy software, and in managing assorted low-level business processes, such as vetting contracts and insurance claims. But even these cannot be left entirely to the discretion of machine intelligence, at least for now.
AI tools have to be integrated into the business flow, run, tested, and their freedom from hallucination and credibility established, before companies can entrust their routine but vital tasks to some plugins, however ethical and well-behaved Claude might be.
Savvier Indian tech companies have moved to jobs calling for higher-order skills, as testified to by their higher revenue per employee numbers, compared to their peers. AI will probably persuade the rest also to scramble up the value chain. Rather than this being bad for Indian IT, it would be act like a kick in the butt for the dawdlers, forcing them also to shape up. The IT bloodbath is probably a buying opportunity for those who do tai chi in the morning to develop a muscular gut.
Tax Breaks And Market Shakes
The Budget increased securities transaction taxes, and the markets tanked, already smarting from global developments that have been pushing the dollar down, US yields high and bullion seesawing.
The Budget lowered the total expenditure of the government for the next fiscal to 13.6% of GDP, reducing the stimulus the economy stands to receive from government spending, and managed to project a fiscal deficit that is lower than what is estimated to be achieved in the current fiscal: 4.3% of GDP, down from 4.4% of GDP.
The Budget offered a wholly avoidable 20-year tax holiday for foreign hyperscalers (those who build very large data centres that consume power in the range of gigawatts (GW)). Since Amazon, Microsoft and Google have already announced their plans to invest a combined $65 billion to set up data centres in India, without any hint at needing the incentive of tax breaks, why such tax breaks are being handed out is a vital question. There are hints from anonymous officials, who do not want to be named, that the tax break is on offer only for the global income of these hyperscalers.
Misplaced Outcry
The trade deal was announced by American President Donald Trump on his social media platform, Truth Social. It said the US is cutting tariffs on imports from India to 18%, as India has promised to stop importing Russian oil, to buy American produce in large quantities — $500 billion is the figure Trump announced, more than 10 times India’s imports from the US in 2024-25, and more than half of India’s total import bill for that fiscal — and that India would reduce import duties on American goods to zero.
Subsequent clarifications from other officials have made it clear that these are goals to be met over a period of time, and the assorted sectors, particularly in agriculture, will stay outside the scope of imports from the US. That has not prevented many in India, particularly from the Opposition, raising charges of a sellout.
They raise the fear that Prime Minister Modi has sold India’s sovereignty short, compromised the interests of Indian farmers and workers, that Prime Minister Modi has said India would stop buying Russian crude and that agreeing to buy $500 billion worth of stuff from the US would make India’ other free trade agreements look hollow.
The outcry over India’s supposed surrender of sovereignty in accepting a trade deal with the US is misplaced. No government will compromise core interests of the nation in a trade deal, for reasons of political survival of the ruling party, if not on account of commitment to the national interest.
Objective commentary on the trade deal will have to wait for the final negotiated text to be released. Right now, vague hints and surmises build on the few facts available about the agreement. President Trump has said India will reduce tariffs on American exports to zero.
Other officials have suggested that zero tariffs would be more specific and limited. If India were to import, hypothetically, the most advanced Rubin chips from NVIDIA, it makes no sense for India to make them more expensive by levying any tariff on the chips. So is the case with LNG, as well, or equipment for a small modular nuclear reactor.
Geopolitics And Internal Fractures
India’s trade deal with the US has to be seen in the overall context of India’s geopolitical compulsions. Right now, India crucially depends on the US for some kinds of strategic and diplomatic support vis-à-vis China, which has cultivated and armed Pakistan to serve as its force multiplier against India. India has to keep the US engaged in a positive fashion, without giving in on core matters of strategic autonomy, but making necessary compromises where these are necessary.
Where the government should be faulted for betraying India’s strategic interests is in failing to develop an indigenous research and development ecosystem and providing for generous funding of startups that work in hard tech areas, distinct from 10-minute delivery and cosmetics that will max out your looks.
The political leadership also betrays the national interest when it allows its leaders and footsoldiers to carry out attacks on India’s social cohesion, spewing hate speech at minorities, as in Assam, or attacking a man who steps up to defend a lone shopkeeper being assaulted by religious fanatics, as happened in Uttarakhand recently.
Crying wolf on sovereignty is a bad political strategy if there is no wolf in the offing.
