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1. Greater flow of resources to states augur well for capital spending
State governments play a crucial role in capital expenditure, and their financial stability largely depends on resource allocation from the Centre. The Union Budget significantly influences states’ revenue, tax devolution, and grants. Over the years, the Centre has been increasing financial assistance, particularly through tax devolution and special assistance schemes, to boost capital expenditure in states.
Tax Devolution and Grants to States
Tax devolution and grants together contribute over 40% of many states’ revenues. The Centre’s revised estimates for 2024-25 indicate a tax devolution of ₹12.9 trillion, a slight increase from the initially budgeted ₹12.5 trillion. For 2025-26, the estimated tax devolution is ₹14.2 trillion, an 11% increase from the previous year. However, potential revenue losses from personal income tax modifications may pose challenges to this projection.
Grants from the Centre have shown fluctuations, particularly after the end of GST compensation grants in 2022-23. In 2023-24, total grants to states fell by 13% to ₹7.8 trillion. The revised estimates for 2024-25 further lowered grants by ₹1 trillion, mainly due to reduced allocations for centrally sponsored schemes and GST compensation. However, for 2025-26, grants are projected to grow by 14%, reaching ₹8.9 trillion, outpacing the rise in tax devolution.
Special Assistance Scheme and Capital Expenditure
To support states’ capital expenditure, the Centre has been allocating interest-free loans under the special assistance scheme. In 2024-25, the revised estimate for this scheme stands at ₹1.25 trillion, slightly lower than the initial ₹1.5 trillion. Encouragingly, by January-end, ₹1.1 trillion had already been disbursed, similar to the previous year.
All 28 states availed funds under this scheme in 2024-25, including Kerala and Punjab, which had skipped it the previous year. Four states—Bihar, Madhya Pradesh, Uttar Pradesh, and West Bengal—accounted for 40% of the total disbursement. The 2025-26 allocation has been enhanced to ₹1.5 trillion, which is a positive development. However, the effectiveness of this scheme will depend on the balance between untied and tied loans and related conditionalities.
Conditional Borrowing for Power-Sector Reforms
In a significant move, the Centre has extended the additional borrowing facility of 0.5% of Gross State Domestic Product (GSDP) for states undertaking power-sector reforms. Initially set to end in 2024-25, this scheme will continue in 2025-26, aligning with the Centre’s goal of promoting reforms in the power sector. Between FY2022-24, states borrowed ₹1.2 trillion under this framework.
Implications and Future Outlook
The 2025-26 Union Budget’s features—such as increased tax devolution, enhanced capex loan allocation, and continued conditional borrowing for power-sector reforms—are expected to bolster capital spending by states. Additionally, the recommendations of the 16th Finance Commission, expected before the 2026-27 Union Budget, will be crucial in setting deficit and debt targets for FY2027-31. It remains to be seen whether the Centre will extend the capex loan scheme beyond this period and whether such loans will continue to be outside net borrowing limits.
Conclusion
The greater flow of resources to states, particularly through tax devolution, grants, and capex loans, augurs well for capital expenditure. However, the Centre must ensure consistency in fund allocations and address potential revenue shortfalls to sustain long-term economic growth at the state level.
2. Best of Both Sides: Despite Trump’s Russia outreach, India can ensure Ukraine is at every table
As the United States and Russia engage in high-level negotiations over Ukraine’s future—without Ukraine at the table—India cannot help but see a painful parallel to its own history. The exclusion of Ukraine from its fate is a stark reminder of how great powers have, time and again, decided the destinies of nations without regard for the people whose lives are at stake. This mirrors the colonial arrogance that defined the Partition of India in 1947, when Britain, in its hurried retreat, drew arbitrary borders with little understanding of the human and geopolitical consequences. For India, the exclusion of Ukraine from these talks is more than just a diplomatic misstep—it is an act of profound historical injustice.
Historical Parallels and the Cost of Unjust Peace Deals
If history offers any lessons, India knows that peace deals brokered without justice do not create lasting stability—they merely reward aggression. In his first administration, US President Donald Trump’s so-called “peace deal” in Afghanistan was nothing but a withdrawal agreement that handed the country back to the Taliban. The result was the collapse of Afghan democracy and the return of a brutal regime that has taken away the freedoms of Afghan women, minorities, and dissidents. Rather than ensuring positive peace—one that secures justice, stability, and prosperity—Trump’s deal abandoned the Afghan people to an uncertain and regressive future.
Now, history appears to be repeating itself in Ukraine. Trump’s approach to Russia-Ukraine negotiations is not about peace—it is capitulation. His administration is reportedly offering pre-emptive concessions to Russia, excluding Ukraine from its own future, and rewarding an aggressor for violating international law. This is not a peace deal—it is a geopolitical surrender that will leave Ukraine vulnerable and Europe weakened.
India’s Stand on Sovereignty and Territorial Integrity
India understands what it means to fight for dignity and territorial integrity. India’s independence struggle was a fight to reclaim its sovereignty from imperial powers who saw it as a pawn in their strategic games. Ukraine is in that same battle today—fighting for its right to exist as a sovereign state, for its people to live without fear, and for its territorial integrity to be respected. Just as Britain drew haphazard borders in India without understanding the communities they divided, the Trump administration is preparing to redraw Ukraine’s future without regard for the people who actually live there.
India’s Strategic Role in Ensuring Fair Negotiations
India can take a proactive role in ensuring that Ukraine remains an integral part of any negotiations. This can be achieved through the following strategic measures:
- Utilizing Multilateral Forums: India should use BRICS, IBSA (India-Brazil-South Africa), and the Shanghai Cooperation Organization (SCO) to push for a collective demand that Ukraine must be part of the negotiations. It should quietly pressure Moscow by warning that a flawed peace will lead to long-term instability, affecting Russia’s future standing.
- Engaging with the Gulf Nations: India can leverage its growing relationship with Saudi Arabia and the UAE, both of whom have engaged in peace efforts, to insist that Ukraine be present in all negotiations. As a major energy importer, India can work with Gulf states to signal that a stable Ukraine is critical for global economic security.
- Asserting Its Position in Global Institutions: As a key voice in the UN General Assembly, Security Council debates, and G20 summits, India can publicly oppose any settlement that does not respect Ukraine’s sovereignty.
- Using Economic and Military Leverage: India should use its major arms purchases from Russia and trade ties with the West as leverage to ensure a fair settlement.
Conclusion
A peace that does not include justice, accountability, and strategic security is not peace—it is merely a pause before another war. By conceding Ukrainian territory to Russia, Trump is laying the foundation for another long-term conflict, just as Britain’s arbitrary partitioning of India laid the groundwork for decades of Indo-Pakistani tensions. India, with its deep history of fighting colonial injustice, cannot support a peace deal that is based on big-power negotiations at the expense of smaller nations. A just resolution must be based on Ukraine’s territorial integrity, the dignity of its people, and its right to a secure and independent future.
Anything less than this would not be peace—it would be a return to an era of imperialism, where powerful nations decide the fate of weaker ones without consequence. Just as India still lives with the wounds of Partition, Europe may find itself trapped in another century of conflict and instability if Ukraine’s voice is not included in determining its own destiny. The world, and India, must not let history repeat itself.
3. Best of Both Sides: As Trump upends world order, India must be practical, reset diplomatic ties
Geopolitical Shifts and the Transatlantic Alliance
The transatlantic alliance has been significantly weakened. Statements from US Vice President J D Vance at the AI Summit in Paris and the Munich Security Conference, as well as the strategic realities outlined by US Secretary of Defence Peter Hegseth at NATO headquarters, indicate that the US intends to shift responsibility for European security to Europe itself. The US-Russia negotiations at the Riyadh meeting—held without European or Ukrainian participation—suggest that Ukraine will not be allowed into NATO. These talks also acknowledge the improbability of Russia returning to the previous territorial status quo, with sanctions on Russia expected to be lifted following a peace deal.
Europe’s Response to Changing Security Dynamics
In an urgent meeting convened by French President Emmanuel Macron, European leaders acknowledged the need to bolster their own defense capabilities. The US-Russia negotiations on Ukraine compel Europe to contain Russian influence in Eastern Europe while preparing for a scenario where Ukraine succumbs to combined US-Russian pressure. This could drain European resources and deepen internal divisions.
While NATO chief Mark Rutte has pledged greater European defense spending, the US may limit its NATO presence, exclude Europe from Ukraine negotiations, and oppose European troop deployment in Ukraine. British Prime Minister Keir Starmer has insisted on US backing for European security guarantees, but former US President Donald Trump has been non-committal.
The Palestinian Crisis and Middle East Realignments
The Palestinian cause faces a dire situation. A plan, reportedly agreed upon by Trump and Israeli Prime Minister Benjamin Netanyahu, seeks to transform Gaza into a “riviera” by permanently displacing Palestinians. Under pressure from Trump, the Gulf Cooperation Council (GCC) states and Arab nations are attempting to devise an alternative roadmap that prevents mass expulsion while placing the financial burden of Gaza’s reconstruction on them.
US Strategic Shifts: Russia, China, and Taiwan
Despite ongoing tensions, Trump appears inclined to negotiate a trade deal with Chinese President Xi Jinping, signaling a shift in US-China relations. The US outreach to Russia is seen as an attempt to weaken China’s influence by drawing Moscow away from Beijing. However, this could leave Taiwan vulnerable, as US efforts to balance power dynamics may prioritize broader geopolitical interests over traditional alliances.
Implications for India
Given these developments, India must recalibrate its diplomatic approach and anticipate geopolitical uncertainties. Several key trends are evident:
- Europe’s inward turn: Increased European protectionism could lead to reciprocal trade measures against US tariffs. This presents opportunities for India, Vietnam, and other labor-intensive economies.
- Resource Availability Post-Conflict: Once peace returns, Ukrainian commodities such as sunflower oil, fertilizer, and wheat will re-enter global markets, reducing prices for the Global South.
- Reconstruction Opportunities: Ukraine and Gaza will offer significant economic prospects for rebuilding efforts.
- Carbon Border Adjustment Mechanism (CBAM): Europe’s implementation of CBAM will initially affect Indian steel and cement industries, increasing export costs. However, Indian manufacturers could leverage this challenge to adopt greener production methods, ensuring long-term competitiveness.
Strengthening India’s Global Economic Position
India has a strategic opportunity to strengthen digital partnerships with Europe and the US. Common ground can be found on AI regulation, e-commerce, and data storage policies, as both India and Europe favor a balanced approach. Additionally, India can enhance its defense capabilities through joint manufacturing and technology transfer agreements.
New trade agreements are crucial. India should accelerate efforts to establish Free Trade Agreements (FTAs) with the UK, EU, GCC, Africa, and Latin America. A Comprehensive Economic Cooperation Agreement (CECA) with Australia would further liberalize trade and bolster India’s participation in global supply chains.
Conclusion
As the global order shifts towards transactional geopolitics, India must navigate these uncertainties pragmatically. By leveraging emerging opportunities and diversifying its trade and security partnerships, India can enhance its strategic autonomy and reinforce its position in the evolving global landscape.
Also Read: Indian Express Editorial Analysis: February 20, 2025
Disclaimer:
This analysis is based on the editorial content published in Indian Express and is intended solely for informational and educational purposes. The views, opinions, and interpretations expressed herein are those of the author of original article. Readers are encouraged to refer to the original article for complete context and to exercise their own judgment while interpreting the analysis. The analysis does not constitute professional advice or endorsement of any political, economic, or social perspective.
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