India's budget boosts infrastructure spending while vowing fiscal discipline

NEW DELHI (AP) — Prime Minister Narendra Modi’s government presented its annual budget to Parliament on Sunday, focusing on sustaining the country’s economic growth despite volatile financial markets and trade uncertainty.

In a speech introducing the budget, Finance Minister Nirmala Sitharaman said the governments plans to boost investments in infrastructure and domestic manufacturing while sticking to fiscal prudence.

The budget for the 2026-27 financial year, which starts April 1, comes as major economies grapple with high interest rates, geopolitical tensions and renewed protectionism that has weighed on global trade and capital flows.

India has so far withstood high tariffs imposed by the U.S., largely by frontloading some exports and diversifying shipments to new destinations.

The finance ministry’s economic survey, which was released on Thursday ahead of the budget, forecast India’s economy to grow between 6.8% and 7.2% in the next fiscal year buoyed by increasing domestic consumption.

Despite plans for higher spending in some areas, the government reiterated its commitment to fiscal consolidation, targeting a deficit of 4.3% of the GDP next year, down slightly from the 4.4% of GDP deficit the government is on track to achieve in the fiscal year ending in March.

Here are some key takeaways from the budget:

Sitharaman offered no populist giveaways, saying New Delhi will focus on building resilience at home while positioning itself more firmly in the global supply chain.

Last year’s budget wooed the salaried middle class with steep tax cuts after Modi secured a landslide victory in the national polls.

“India will continue to take confident steps towards Viksit Bharat (Developed India), balancing ambition with inclusion,” Sitharaman said.

The focus will be on structural reforms, mainly in the manufacturing sector, while also stepping up investments in niche industries such as biopharma and artificial intelligence, she added.

The budget call for the government’s capital expenditure for the next fiscal year to reach 12.2 trillion rupees ($133 billion), mainly on infrastructure, up from 11.2 trillion rupees last year.

This comes at a time when many advanced economies are cutting back public investments due to high debt and tightened monetary policy. India will use state spending to prop up growth.

Sitharaman said the government will scale up manufacturing in seven strategic sectors including biopharma, semiconductors, electronics components and rare earth magnets. To reduce import dependency, three chemical production parks will be set up.

Recognizing global concerns over slowing job creation, especially in manufacturing, the budget announced additional credit support and a growth fund for micro, small and medium enterprises.

Sitharaman outlined steps to deepen India’s financial markets, including measures to strengthen the corporate bond market and ease certain rules for foreign investors.

With global capital increasingly selective amid higher interest rates in the West, emerging markets are competing for stable and long-term investment.

“I propose a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules to create a more contemporary, user-friendly framework for foreign investments, consistent with India’s evolving economic priorities,” Sitharaman said.

Sitharaman said India plans to promote environmentally sustainable travel with seven high-speed rail corridors between key cities such as Mumbai-Pune, Hyderabad-Bengaluru, Pune-Hyderabad, and Chennai-Bengaluru.

For cargo movement, an unspecified number of new dedicated freight corridors will be set up and 20 new waterways operationalized over the next five years, she said.

Dedicated freight corridors will also be set up for rare earths to promote mining, processing, research and manufacturing.

In addition, she said that the government will develop ecologically sustainable mountain and coastal trails to promote ecological tourism.

A vegetable vendor carries a sack of vegetables at a local market in Mumbai, India, Sunday, Feb. 1, 2026. (AP Photo/Rafiq Maqbool)

Indian daily wage laborers wait to get hired in Mumbai, India, Sunday, Feb. 1, 2026. (AP Photo/Rafiq Maqbool)

Indian Finance Minister Nirmala Sitharaman, center, displays a red folder containing the Union Budget 2026-27 at the steps of the parliament house before tabling it, in New Delhi, India, Sunday, Feb. 1, 2026. (AP Photo)

Indian Finance Minister Nirmala Sitharaman displays a red folder containing the Union Budget 2026-27 at the steps of the parliament house before tabling it, in New Delhi, India, Sunday, Feb. 1, 2026. (AP Photo)

People stand near the site of the under-construction coastal road in Mumbai, India, Sunday, Feb. 1, 2026. (AP Photo/Rafiq Maqbool)

DUBAI, United Arab Emirates (AP) — Iran’s supreme leader on Sunday compared the nationwide protests that challenged the country’s theocracy to “a coup.”

The comments by 86-year-old Supreme Leader Ayatollah Ali Khamenei come as tens of thousands of people are reportedly detained in Iran after the protests.

It further hardens the government’s position on the demonstrations.

Seditious charges in Iran can also carry the death penalty, which again renews concerns about Tehran carrying out mass executions for those arrested.

Iran’s conducting mass executions had been one of the red lines laid down by U.S. President Donald Trump for potentially using military force against the country.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

DUBAI, United Arab Emirates (AP) — Iran's supreme leader warned Sunday that any attack by the United States would spark a “regional war” in the Mideast, further escalating tensions as President Donald Trump has threatened to militarily strike the Islamic Republic.

The comments from the 86-year-old Ayatollah Ali Khamenei are the most-direct threat he’s made so far as the aircraft carrier USS Abraham Lincoln and associated American warships are in the Arabian Sea, sent by Trump there after Tehran's bloody crackdown on nationwide protests.

It remains unclear whether Trump will use force. He's repeatedly said Iran wants to negotiate and has brought up Tehran's nuclear program as another issue he wants to see resolved.

But Iran had planned a live-fire military drill for Sunday and Monday in the strategic Strait of Hormuz, the narrow mouth of the Persian Gulf through which a fifth of all oil traded passes. The U.S. military's Central Command had warned against threatening American warships or aircraft during the drill or disrupting commercial traffic.

Iranian state television reported Khamenei's comments online before airing any footage of his remarks.

“The Americans should know that if they start a war, this time it will be a regional war," Khamenei was quoted as saying.

It added that Khamenei said: “We are not the instigators and we do not seek to attack any country. But the Iranian nation will deliver a firm blow to anyone who attacks or harasses it.”

The speaker of Iran's parliament, meanwhile, said that the Islamic Republic now considers all European Union militaries to be terrorist groups, lashing out after the bloc declared the country's paramilitary Revolutionary Guard a terror group over its bloody crackdown on nationwide protests.

Mohammad Bagher Qalibaf, a former Guard commander, announced the terror designation, which will likely be mostly symbolic. Iran has used a 2019 law to reciprocally declare other nations' militaries terror groups following the United States declaring the Guard a terror group that year.

Qalibaf made the announcement as he and others in parliament wore Guard uniforms in support of the force. The Guard, which also controls Iran's ballistic missile arsenal and has vast economic interests in Iran, answers only to Iran's 86-year-old Supreme Leader Ayatollah Ali Khamenei.

“By seeking to strike at the (Guard), which itself has been the greatest barrier to the spread of terrorism to Europe, Europeans have in fact shot themselves in the foot and, once again through blind obedience to the Americans, decided against the interests of their own people," Qalibaf said.

Lawmakers at the session later chanted: “Death to America!” and “Death to Israel!” at the session.

Trump has laid out two red lines for military action: the killing of peaceful protesters or the possible mass execution of those detained in a major crackdown over the demonstrations. He's increasingly begun discussing Iran's nuclear program as well, which the U.S. negotiated over with Tehran in multiple sessions before Israel launched a 12-day war with Iran back in June.

The U.S. bombed three Iranian nuclear sites during the war. Activity at two of the sites suggests Iran may be trying to obscure the view of satellites as it tries to salvage what remains there.

Trump on Saturday night declined to say whether he’d made a decision on what he wanted to do regarding Iran.

Speaking to reporters as he flew to Florida, Trump sidestepped a question about whether Tehran would be emboldened if the U.S. backed away from launching strikes on Iran, saying, “Some people think that. Some people don’t.”

Trump said Iran should negotiate a “satisfactory” deal to prevent the Middle Eastern country from getting any nuclear weapons, but said, “I don’t know that they will. But they are talking to us. Seriously talking to us.”

Ali Larijani, a top security official in Iran, wrote on X late Saturday that “structural arrangements for negotiations are progressing.” However, there is no public sign of any direct talks with the United States, something Khamenei has repeatedly ruled out.

Associated Press writer Will Weissert aboard Air Force One contributed to this report.

People walk through the Tajrish bazaar market in northern Tehran, Iran, Tuesday, Jan. 27, 2026. (AP Photo/Vahid Salemi)

This handout image from the U.S. Navy shows an EA-18G Growler landing on the flight deck of the Nimitz-class aircraft carrier USS Abraham Lincoln in the Indian Ocean on Jan. 23, 2026. (Mass Communication Specialist Seaman Daniel Kimmelman/U.S. Navy via AP)

A woman walks through the Shiite Saints Abdulazim and Taher shrine in Shahr-e-Ray, south of Tehran, Iran, Thursday, Jan. 29, 2026. (AP Photo/Vahid Salemi)