India’s Finance Minister, Nirmala Sitharaman, is set to present the Union Budget for 2026–27 on February 1. This marks her ninth consecutive budget presentation and the third full budget from the National Democratic Alliance (NDA) 3.0 government.

This budget arrives at a critical juncture, shaped by resilient domestic economic growth, uncertainty in global trade, and rising expectations from both households and businesses. It is widely seen as a pivotal policy signal that will define India's medium-term growth trajectory. For income taxpayers, Non-Resident Indians (NRIs), and investors, the key areas of focus are potential tax relief, capital market stability, export competitiveness, and fiscal discipline.

Balancing Growth and Fiscal Prudence

India, currently the world's fourth-largest economy and on track to overtake Germany for the third spot by 2027-28, is projected to grow at 7.4% this fiscal year, an increase from 6.5% in the previous year.

However, a challenge looms in the form of slowing nominal GDP growth, which is expected to be around 8%—its weakest pace in five years. Since nominal GDP directly influences tax collections, this puts pressure on the government to strike a delicate balance between fiscal consolidation and growth-oriented spending. Markets will be closely watching whether the government can stick to its planned path of reducing the fiscal deficit while continuing to fund capital expenditures in infrastructure and manufacturing.

Spotlight on Tax Relief for Households and NRIs

Will the New Tax Regime See More Incentives?

Taxpayers are heading into budget week with high expectations, following last year's major reform that made annual income up to Rs1.2 million tax-free under the new tax regime. Analysts anticipate the government may:

• Fine-tune tax slabs

• Widen deductions available to salaried employees

• Further simplify compliance rules to encourage more people to adopt the new regime

There is also speculation about potential increases to the standard deduction, a rationalization of surcharge structures for high-income earners, and a streamlining of capital gains taxation. With consumption becoming a crucial driver of economic growth, targeted tax relief could boost discretionary spending without compromising revenue buoyancy.

Addressing the Needs of Non-Resident Indians (NRIs)

For NRIs, the top priorities remain clarity on the taxation of overseas income, simplified reporting requirements, and smoother norms for repatriating funds. India continues to be one of the largest recipients of remittances globally, with annual inflows exceeding $125 billion, providing a stable cushion of foreign exchange.

Market participants expect the budget to introduce measures that strengthen digital tax compliance, reduce procedural hurdles for foreign investors and NRIs, and clarify the capital gains tax treatment for overseas Indians investing in equities, real estate, and alternative assets. Policies aimed at easing double taxation disputes and simplifying documentation for returning Indians may also be featured.

"If the budget successfully balances household relief, investor confidence and long-term infrastructure priorities, it could reinforce India's reputation as one of the world's most resilient large economies — at a time when global markets remain volatile and trade tensions continue to rise," says K.V. Shamsudheen, a Dubai-based director at Barjeel Geogit Securities.

Investor Focus: Policy Continuity and Market Stability

Equity investors are looking for signals of policy continuity, stable taxation, and predictable regulatory frameworks. Shamsudheen adds that with the Sensex having corrected more than 5% from its late-2025 peak, markets are particularly sensitive to news regarding fiscal discipline and macroeconomic stability.

To buffer the economy from potential US tariff actions under President Donald Trump, the budget is expected to include export incentives, rationalization of customs duties, and targeted support for key sectors. Analysts suggest that a supportive budget for manufacturing, logistics, and MSMEs could help protect corporate margins and sustain earnings growth.

There is also anticipation of further reforms designed to deepen bond markets, expand retail participation in financial markets, and promote long-term savings instruments, especially amid rising global volatility.

Sector-Specific Demands: From Tech to Agriculture

Fueling India's Tech and Startup Ecosystem

India's vibrant startup ecosystem is pushing for stronger incentives to accelerate development in deep-tech and artificial intelligence. Industry leaders are calling for enhanced R&D tax credits, lower costs for cloud and data infrastructure, and simpler ESOP taxation rules to help companies attract global talent. Entrepreneurs also seek easier access to domestic growth capital, clearer GST treatment for SaaS exports, and reduced compliance burdens that often lead startups to incorporate overseas.

Infrastructure and Urban Development Priorities

Infrastructure spending remains a central pillar of India's growth strategy. Experts are calling for reforms in project execution, lifecycle-based funding models, and a greater emphasis on operations and maintenance to ensure the long-term productivity of assets. The real estate sector is hoping for higher allocations to urban housing programs and revisions to affordable housing thresholds to account for rising construction and land costs.

Energy Security and the Green Transition

Energy independence is another major theme. Industry leaders are urging the government to rationalize taxes across the oil and gas value chain, bring transport fuels under the GST framework, and accelerate biofuel and offshore exploration programs. The electric vehicle sector is looking for a recalibration of incentive schemes, increased R&D support, and stronger domestic manufacturing incentives to reduce import dependence and achieve scale.

Supporting the Agricultural and Rural Economy

Despite strong policy intentions, several farm sector initiatives from last year are still under implementation. Stakeholders are seeking a faster rollout of credit schemes, productivity missions, and seed development programs. With agriculture employing nearly half of India's workforce, the budget's focus on the rural economy will be critical for maintaining income stability and driving consumption demand.

The Final Verdict: Key Metrics Markets Will Scrutinize

Beyond the headline announcements, investors will meticulously analyze the fine print on fiscal deficit targets, government borrowing plans, and capital expenditure allocations. The budget's success will ultimately be judged on its ability to deliver policy continuity, credible fiscal consolidation, and targeted spending that genuinely supports growth.

Hong Kong is doubling the supply of yuan available for banks to borrow, a decisive move to satisfy growing global demand and advance China's efforts to internationalize its currency.

Effective February 2, the Hong Kong Monetary Authority (HKMA) will expand its RMB Business Facility to 200 billion yuan (RM113.86 billion). The program allows banks to access yuan loans for up to one year, with rates benchmarked against the Shanghai Interbank Offered Rate.

According to the HKMA, the facility has seen an "overwhelming response" since its launch in October 2025. The initial quota was fully allocated to 40 participating banks, demonstrating intense demand that extends far beyond local corporate needs. The de facto central bank noted that funds have also been channeled to regions including Southeast Asia, the Middle East, and Europe.

Why the Yuan is Gaining Global Traction

Appetite for yuan funding has climbed in recent years, largely because its borrowing costs are significantly cheaper than those for the US dollar and euro. This expansion is designed to reinforce Hong Kong’s position as the leading offshore yuan hub while supporting Beijing's currency ambitions amid shifting confidence in the dollar.

The announcement came "much sooner than expected, indicating stronger-than-expected demand for yuan liquidity in the offshore market," noted Becky Liu, head of China macro strategy at Standard Chartered Bank plc. She added that lower interest rates have made the yuan a far more attractive funding currency.

This trend is reflected in hard data. According to figures compiled by Bloomberg, outstanding yuan loans from China's onshore banks to overseas entities surged to a record 2.52 trillion yuan by the end of 2025, a dramatic increase from 979 billion yuan at the end of 2022.

Figure 1: Data compiled by Bloomberg illustrates the rapid growth in outstanding overseas yuan loans from China's onshore banks, which reached a record 2.52 trillion yuan by the end of 2025.

The RMB Business Facility (RBF) is an evolution of an earlier yuan-funding program launched in February 2025. Its use has been broadened from trade finance to also cover corporate intra-group funding and capital expenditure loans. To support the program, the HKMA maintains an 800 billion yuan currency swap line with the People's Bank of China (PBOC).

Beijing's Broader Strategy for the Yuan

China's central bank has also signaled fresh support for developing yuan business in Hong Kong.

At a forum on Monday, PBOC Deputy Governor Zou Lan announced that China will increase its annual issuance of offshore yuan-denominated government bonds. He also stated that authorities are exploring the potential launch of offshore bond futures.

Analysts see these coordinated moves as part of a larger strategic push. "We see yuan internationalisation accelerating in 2026 as the yuan is gradually emerging into a 'safe haven' currency, backed by its strong economic and trade fundamentals," said Standard Chartered's Liu.

She expects this momentum will lead to more global funding, cross-border settlement, and direct investment being conducted in the Chinese currency.

Hong Kong is partnering with the Shanghai Gold Exchange to launch a new central clearing system for gold, a strategic move by China to increase its influence in the booming precious metals market.

The Hong Kong government signed a memorandum of understanding on Monday that brings the Shanghai Gold Exchange on board to help establish the Hong Kong Precious Metals Central Clearing Co. The exchange will provide critical technical expertise as well as regulatory and risk-management support for the new venture.

Trial operations for the clearing system are scheduled to begin later this year.

A Strategic Partnership Takes Shape

The Shanghai Gold Exchange, an entity operating under the People's Bank of China (PBOC), will play a key role in drafting the new system's rules and approving participating institutions.

The new facility aims "to provide efficient and reliable clearing services for gold transactions in compliance with international standards," stated Hong Kong Chief Executive John Lee at the signing ceremony during the Asian Financial Forum.

Leadership for the new company is also set, with Christopher Hui, Hong Kong's secretary for financial services and the treasury, expected to serve as chairman. A representative from the Shanghai Gold Exchange will act as his deputy.

PBOC Backing and a Broader Vision

The initiative has strong support from China's central bank. Zou Lan, the PBOC's deputy governor, confirmed the bank's commitment to the project.

"The People's Bank of China will support the Shanghai Gold Exchange in participating in the development of Hong Kong's gold clearing system through various means," Zou said. He added that the cooperation is designed to help Hong Kong become an international gold trading center and deepen its ties with the global gold market.

Furthermore, Zou noted that this collaboration will reinforce Hong Kong's crucial role as an offshore market for the yuan.

Gold's Rally and China's Growing Influence

The move comes as gold prices continue a historic rally amid global geopolitical uncertainty, with the metal topping $5,000 an ounce on Monday.

China is a dominant force in the market, standing as the world's largest producer and consumer of gold. According to the World Gold Council, the country held 7.7% of global gold reserves as of September last year. China has also been a net buyer of gold for 14 consecutive months, increasing its official holdings to 2,306 metric tons.

Building the Infrastructure for a Global Hub

To support its ambitions, the Hong Kong government plans to develop a gold vault with a capacity exceeding 2,000 tons within the next three years. This project will leverage the Shanghai Gold Exchange's physical warehousing management system to offer secure storage for both local and international investors.

Hong Kong is also exploring tax incentives to boost its appeal. Officials are considering adding precious metals to the list of "qualifying investments" for tax concessions available to funds and family offices, a step aimed at cementing the city's status as a global financial hub.

The Bank of Japan (BOJ) signaled Monday that a weak yen now has a greater and more prolonged impact on the nation's inflation, as companies have become more aggressive in passing on rising costs.

In a detailed analysis from its quarterly outlook report, the central bank outlined how a currency shock directly feeds into higher prices. The findings suggest that the inflationary effects of a weak yen are becoming larger and more persistent than in the past, putting further pressure on the BOJ to consider additional interest rate hikes.

Deeper Analysis Shows a Two-Wave Impact

The BOJ's study identified a clear pattern following a drop in the yen's value.

Initially, inflation is boosted within the first year as companies pass on higher import costs. However, the analysis revealed an equally significant impact that emerges three years later. These "second-round" effects are driven by the pass-through of rising labor costs, embedding inflation more deeply into the economy.

While the report studied the mechanics of a weak-yen shock in general, it did not directly comment on the yen's current level, which recently hit a low for 2024 against the dollar before recovering.

Risk of a Wage-Price Spiral Grows

The central bank noted that Japanese companies are showing more active wage- and price-setting behavior. This shift increases the likelihood of a sustainable cycle where wages and prices rise in tandem.

"There's a chance wages and inflation could overshoot expectations," the report stated. This risk becomes more pronounced if firms pass on labor costs more actively or if wage pressures intensify due to Japan's tight job market.

Rate Hike Signals Get Stronger

This detailed analysis follows the BOJ's decision on Friday to hold interest rates steady. Despite the hold, policymakers released hawkish inflation forecasts and stressed their vigilance regarding price risks from the yen, signaling a clear intention to continue raising borrowing costs.

Market consensus points to another rate hike in June or July. However, sources suggest that some BOJ officials believe a move could come sooner than markets anticipate if the yen's decline persists, with some even seeing a possibility of action in April.

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