India’s strategic pivot

The flurry of economic announcements in late January and early February 2026 — the Union Budget, the India-EU Free Trade Agreement, the India-UK FTA, and the India-US interim trade deal — might appear to be discrete policy initiatives. In my view, they represent coordinated elements of a profound geopolitical realignment: the implementation of the West’s “China+1” strategy, with India positioned as the cornerstone of a reconfigured global supply chain architecture. Understanding these developments requires looking beyond tariff schedules and fiscal allocations to recognise the strategic imperatives driving Western economic engagement with India.

1. The Policy Framework: Budget and Trade Agreements

 Budget 2026: Building the Infrastructure for Supply Chain Migration

Finance Minister Nirmala Sitharaman's Budget for 2026-27 allocated $133 billion to capital expenditure, with record spending on railways ($32.2 billion), on seven high-speed rail corridors, and a 15% increase in defence spending.  The budget’s centrepiece — a 20-year tax holiday for data centres — is projected to attract over $200 billion in investments, primarily from US technology companies. The government maintained fiscal discipline with a deficit target of 4.3% of GDP for the Financial Year 2026-27, down from 4.4% in the Financial Year 2025-2026.

India–UK FTA: Deepening the Commonwealth Partnership

India and the UK sealed a free trade agreement in July 2025, eliminating tariffs on products ranging from cars to alcohol, and finalising a deal between two major economies at a time when US President Donald Trump’s tariff policies continued to disrupt global trade. The India–UK FTA is described as a “historic achievement” providing geopolitical stability and tariff reductions. Prime Minister Modi stated that India’s bilateral trade with the United Kingdom, currently valued at $56 billion, is expected to double by 2030. The agreement will make it cheaper for UK firms to sell their whisky, cars, auto parts, cosmetics, biscuits, clothing and electrical machinery in the world’s most populous nation. A House of Lords committee concluded that the FTA offers strategic benefits and stability to businesses at a particularly challenging time for international commerce and rules-based trade.

India–EU FTA: Near-Universal Market Access

Signed on 27 January 2026 after two decades of negotiations, the India–EU FTA provides for over 90% of goods and services to be exempt from tariffs, with India cutting tariffs on 96.6% of EU exports and the EU phasing in reductions covering nearly 99% of Indian exports. The agreement is expected to boost India’s EU exports by up to $50 billion by 2031, with implementation targeted for 2026 itself. India granted European automakers a quota of up to 250,000 vehicles at preferential duty rates, which was more than six times larger than the quota offered to the UK. 

India–US Interim Trade Agreement: Tariff Reduction and Strategic Commitments

The 7 February framework reduced US tariffs on $30.94 billion of Indian exports from 50% to 18%, whilst eliminating tariffs entirely on another $10.03 billion. Combined with existing duty-free exports (including generic pharmaceuticals and mobile phones worth $40-50 billion), India now enjoys approximately $50 billion in tariff-free access to the US market. In exchange, India committed to purchasing $500 billion of US goods over five years. The 18% tariff is expected to take effect as early as this week, with United States Trade Representative (USTR) Jamieson Greer visiting India in March to formalise the agreement. 

India–Canada FTA: Strategic Reconciliation and the Completion of Western Alignment

Canada's engagement with India toward a free trade agreement represents perhaps the most strategically significant development in the recent wave of Western economic realignment—precisely because it required overcoming substantial diplomatic obstacles. Relations between New Delhi and Ottawa had deteriorated significantly under Canada's previous government, making economic cooperation politically untenable. Prime Ministers Modi’s and Carney's active efforts to reset this relationship, including a planned visit to India by Carney in early March 2026 to sign deals on uranium, energy, critical minerals, and artificial intelligence, signal that strategic imperatives have superseded previous diplomatic frictions on both sides. 

Canada is set to launch formal FTA negotiations with India in February 2026, with both sides committed to doubling bilateral trade to $50 billion by 2030. Facing an increasingly unpredictable trade relationship with the United States, Ottawa is making “all-out efforts to diversify Canada's alliances beyond the U.S.” The willingness of both nations to move past diplomatic tensions underscores a crucial dimension of India's strategic repositioning: Western nations view partnership with India as sufficiently important to warrant diplomatic repair work and relationship recalibration.

With the Canada–India framework, India will have formalised trade arrangements with all G7 economies except Japan, which maintains an even deeper strategic partnership through the Quad alliance and extensive bilateral cooperation. While outcomes remain subject to negotiation timelines and political developments, in my view the diplomatic effort required to achieve this comprehensive G7 engagement demonstrates that India’s emergence as the cornerstone of Western supply chain diversification represents a strategic consensus, rather than opportunistic bilateral dealmaking.

2. The Strategic Context: India as the Cornerstone of Western Supply Chain Diversification

Beyond Trade: The China+1 Imperative

The confluence of these agreements reveals a strategic realignment that transcends conventional trade liberalisation. In my view, the EU, UK, and US are actively implementing a “China+1” strategy, positioning India as the primary alternative manufacturing and technology hub to reduce dependence on Chinese supply chains. This is not merely trade policy, it represents a fundamental restructuring of global economic architecture driven by geopolitical imperatives that have intensified following years of US-China tensions, supply chain disruptions, and growing concerns about technological sovereignty.

Prime Minister Modi explicitly acknowledged this strategic dimension, stating that the trade pacts with the EU, UK, and US bode well for global “stability” and “pace of progress”, language that signals India’s understanding of its role in a broader geopolitical framework. The combined effect means Free Trade Agreements now cover 71% of India’s exports, but more importantly, they position India as the anchor of reconfigured supply chains across critical sectors.

The Self-Financing Architecture: How $500 Billion Becomes an Investment, Not a Burden

The $500 billion import commitment to the US warrants closer examination, as it reveals the elegant financial architecture underlying this strategic partnership. Rather than representing a burden on India’s economy, this commitment is largely self-financing and strategically aligned with India’s own development priorities.

The bulk of these imports are expected to comprise capital goods essential for India's infrastructure modernisation — aircraft, energy equipment, data centre hardware, coking coal, precious metals, and advanced manufacturing technology. India’s agreement with the US to buy $500 billion worth of goods over five years includes an existing pipeline of projects, as well as new areas of spending such as data centres and energy. Critically, capital goods dominate the import plan, limiting impact on jobs-heavy sectors and avoiding pressure on India’s labour-intensive industries. 

Much of this investment is expected to be driven by US corporations themselves, particularly in the technology sector. The Budget 2026 provision of a 20-year tax holiday for data centres is not coincidental; it is, in my view, a carefully calibrated response to Western corporate demand for alternatives to Chinese technology infrastructure. The projection of over $200 billion in data-centre investments reflects commitments already in the pipeline from US technology giants seeking to diversify their Asian operations. These investments are expected to generate corresponding imports of specialised equipment, servers, and technology components from the United States, creating a virtuous cycle where American corporate investment in India generates the import demand that satisfies the bilateral trade framework.

In my view, Western corporations are financing India’s capacity-building through their own capital expenditure, with the import commitments serving as the accounting mechanism rather than a genuine financial obligation. The data centre investments alone could account for a substantial portion of the $500 billion commitment, with the equipment purchases flowing directly from US technology companies to their own Indian subsidiaries.

Technology Transfer and Industrial Ecosystems: Beyond Traditional Outsourcing

The strategic dimension extends beyond technology infrastructure to sophisticated industrial partnerships. Recent announcements, including Sweden’s initiative to create an aerospace ecosystem in India, signal that European nations are following the US lead in building advanced industrial capabilities in India. This represents a qualitative shift from traditional outsourcing relationships to genuine technology transfer and co-development arrangements in strategic sectors.

India’s infrastructure spending priorities, particularly the record allocation to railways, high-speed corridors, and manufacturing in strategic sectors including semiconductors, rare earth magnets, and advanced chemicals, are designed to create the enabling environment for this supply chain migration. The government’s focus on these sectors directly addresses critical supply chain vulnerabilities that Western economies have identified in their China dependencies.

The Budget’s support for manufacturing across pharmaceuticals, semiconductors, rare earth magnets, chemicals, and textiles is not industrial policy in isolation — it is the domestic complement to the market access provided by the trade agreements. Western partners are not simply seeking new export markets; they are investing in building India’s capacity to serve as a reliable, democratic, and strategically aligned alternative to China across critical technology and manufacturing sectors.

The Broader Ecosystem: GCCs, Aerospace, and Advanced Manufacturing

The post-tariff announcement period has witnessed a surge in commitments from US companies to establish Global Capability Centres (GCCs) in India, expanding beyond traditional IT services to encompass research and development, advanced engineering, and strategic business functions. These GCCs represent a deeper integration of India into Western corporate value chains than previous waves of outsourcing, embedding Indian operations into core business processes rather than peripheral support functions.

The aerospace sector exemplifies this evolution. Sweden’s recent announcement regarding aerospace ecosystem development in India, combined with the India–US agreement providing duty-free access to certain aircraft and aircraft parts, signals a move towards co-production and technology sharing in one of the most strategically sensitive industries. This is not about India assembling components designed elsewhere, it is about India becoming an integral node in global aerospace supply chains, with implications for both commercial aviation and defence capabilities.

The EU’s willingness to grant India preferential market access, with India offering European automakers a vehicle quota six times larger than that provided to the UK, reflects strategic calculations beyond simple market access. European automakers are not simply seeking to sell cars in India; they are evaluating India as a manufacturing base for global markets, particularly as they transition to electric vehicles and seek alternatives to Chinese battery and component supply chains.

The Geopolitical Dividend: Democratic Supply Chains and Strategic Alignment

From the Western perspective, India offers something China does not: a democratic governance structure, alignment with international norms, and strategic convergence on key geopolitical issues. The trade agreements formalise what has been an implicit understanding, that economic integration with India serves not only commercial interests but also broader strategic objectives of building resilient, values-aligned supply chains.

The framework provides immediate certainty and predictability to domestic exporters at the tariff front, with India receiving the lowest tariff rate (18%) compared to regional competitors including Vietnam and Bangladesh (both at 20%). This preferential treatment reflects India's strategic value beyond pure economic metrics.

The agreements aim to widen market access, align economic security policies, and bolster supply chain resilience, language that explicitly acknowledges the security dimensions of economic policy. In an era of increasing economic nationalism and geopolitical fragmentation, India’s trade agreements with the EU, UK, and US represent the construction of an alternative economic bloc centred on democratic governance and strategic alignment.

3. Economic Impact

The Economic Survey 2026 projected GDP growth at 6.8% to 7.2% for FY27, compared to 7.4% for FY26, with the RBI maintaining its FY26 growth expectation at 7.4%. Economists suggest the US–India trade deal could provide at least a 20-30 basis point boost to growth, potentially pushing FY27 GDP above 7%. Goldman Sachs raised India's calendar year 2026 growth forecast to 6.9% from 6.7%, citing the trade agreement. 

India’s Emergence as the Pivot of Global Economic Realignment

The developments of late January and early February 2026 represent more than incremental policy progress. In my view, they may mark India’s emergence as the central pillar of Western economic strategy in Asia, subject to risks around effective implementation and sustained political alignment. The budget’s infrastructure investments, the UK’s comprehensive trade agreement, the EU’s near-universal tariff elimination, and the US’s preferential trade framework are not independent initiatives but coordinated elements of a strategic architecture designed to position India as a comprehensive alternative to Chinese economic dominance. Canada’s parallel engagement—requiring active diplomatic reconciliation after years of strained relations—further demonstrates, in my view, that Western economic strategy toward India reflects coordinated strategic consensus rather than opportunistic bilateral dealmaking. The durability of this alignment will depend on domestic political cycles and evolving geopolitical priorities.

The $500 billion import commitment, far from being a concession, is the financial mechanism through which Western corporations will fund India’s transformation into an advanced manufacturing and technology hub. The scale and pace of investment will depend on corporate confidence, execution capacity, and global demand conditions. The data centre investments, aerospace partnerships, GCC expansions, and advanced manufacturing initiatives announced in the wake of these agreements reveal the true nature of this engagement, in my opinion: a fundamental restructuring of global supply chains with India at the centre.

For investors, this strategic context is crucial. India is not simply gaining market access or tariff relief; it is being systematically integrated into Western economic and technological ecosystems as the preferred alternative to China, in my view. The policy frameworks established in early 2026 could define India’s economic trajectory and its role in the global economy for decades to come, with implications extending far beyond conventional trade metrics to encompass technology leadership, industrial capabilities, and geopolitical influence.

While India appears well positioned to benefit from ongoing supply chain diversification trends, the extent and pace of that benefit remain contingent on several factors. Risks to my outlook include potential delays in trade agreement implementation, shifts in political priorities in partner countries, and execution risks. While acknowledging the risks, I believe that the question is no longer whether India will benefit from supply chain diversification, but rather how quickly it can build the infrastructure, skills, and institutional capacity to fully capitalise on its strategic position as the cornerstone of the West’s China+1 strategy.

Sources

Bloomberg News, Business Standard, Mint, Economic Times, Financial Express, PTI, CNBC TV18, Indian Express

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