When I switched on my TV set to listen to the world glitterati at Davos, Switzerland on 20th January 26, I had little expectation of any memorable speech forthcoming from any of the global statesmen present there. When Mark Carney, the Canadian Prime Minister approached the podium I had all but switched off my mind to the event. Then came the surprise speech from him to the surprise of the audience. By the time the Canadian Prime Minister had finished his speech, he had set the melting snow at Davos on fire! Before I proceed, here is a history lesson. The geologists believe that the landmass on earth was a single parcel, eons ago that was known as, Pangaea. That was two hundred million years ago. Once this supercontinent started cracking, there was no stopping it. It started cracking slowly, at first, but the process would continue unhindered. So is the unipolar world and its order once the process of disintegration commenced. That is the analogy someone came up with, on what Mark Carney’s speech at Davos on the unravelling of the old-world order. Carney, the suave and polite economist that he had been, is not known to making rousing speeches. In his previous avatars as the Chief of the British and Canadian Central Banks he had no necessity for it, either. At Davos he was in his elements. I, with so many around the globe, sat transfixed before the TV sets because of his measured and equally elegant oratory – rich in substance and low in showmanship. This special address at the World Economic Forum simply electrified the audience, earning him a standing ovation (a rare feat) for his unflinching autopsy of the collapsing rules-based world order. This ‘world order’, according to him, is a lie! What is happening now to the world order is a rupture, not even a transition to anything new. In fact, in the name of the new world order great powers are weaponising a fiction through tariffs, coercion and supply chain leverage. Carney skewered the post-World War II bargain – middle powers like Canada prospered under U.S. hegemony’s public goods – open trade, security umbrellas while ignoring visible asymmetries all around. No longer. “Integration becomes subordination,” he warned (a seasoned politician would have used the word ‘thundered’ here), as established hegemons exploit vulnerabilities of other ‘middle powers.’ Multilateral pillars (WTO, UN, COP) are consciously and deliberately allowed to rust, undermining strategic autonomy in energy, minerals and finance around the globe. A “world of fortresses” looms, poorer and fragile, unless effectively countered, he said in a measured tone. Pioneering “value-based realism” (a concept championed by Finland’s President, Alexander Stubb), Carney outlined in his speech Ottawa’s imminent pivot – tax cuts on incomes/capital gains, axing interprovincial trade barriers and fast tracking in the fields of energy, AI, minerals and defense. Carney exhorted the middle powers to unite for their own survival. His warning was as stark as stark can be. According to him “if you are not at the table, you are on the menu.” His recommendation may sound old-fashioned – principled yet pragmatic, calibrating ties by values (human rights and sovereignty). In his inimitable style he made a clarion call to fellow members to “reject nostalgia as it cannot be a strategy” and build domestic strength to enable them to take honest positions. Then followed the line in his speech that was intended squarely for Trump when he pledged unwavering support for Denmark and Greenland against geopolitical coercion, implicitly addressing U.S. pressure. He emphasised upholding international law and strengthening NATO’s northern flank through investments in surveillance and defense. In the end, he rebuked Trump era unilateralism without naming the country. Carney repositioned Canada as an architect building a wall for resilience. In the current chaos spawned by multipolarity, here is Carney’s carefully crafted call to other nations – leverage legitimacy, reject lies and forge equity. Middle powers gain most from cooperation and this blueprint charts it. When Carney finished his speech, I found myself standing before the TV screen and clapping. I am certain that I was not alone. His neighbor back in the north American continent was also listening to him, it appears. By the time he got back home the U.S. Treasury Secretary Scott Bessent had told Fox News that Carney aggressively walked back his comments at the World Economic Forum during a phone call with Trump on just a day back! That was not the last word either, in this episode. “To be absolutely clear, and I said this to the President (of the US), I meant what I said in Davos,” Carney said to reporters as he arrived for a Cabinet meeting in the capital, Ottawa. At the end of it all, this speech by Mark Carney would find pride of place in history books as one of the most memorable speeches for more reasons than one and that one reason is speaking truth to the power.
After the infamous fall out between Trump and Modi and the unilateral imposition of tariffs on India by the US it looked as if trade cooperation between other countries was starting to look bleak – quite bleak. Not any longer. India and the European Union got into a landmark Free Trade Agreement (FTA) just days back. The parties to the agreement had no hesitation in calling it the mother of all free trade agreements! Without doubt, it is one of India’s biggest trade deals. The pact will give Indian exporters preferential access to nearly 99% of the EU market, boosting sectors like textiles, gems, jewelry, IT services, and manufacturing. Broadly, it is expected to strengthen India’s global trade position, attract investments and create jobs. This Comprehensive Free Trade Agreement covers goods, services, investment and mobility. Nearly 99% of Indian exports by value will receive preferential treatment in the EU. Alongside trade, agreements were also signed on security, defense, and mobility partnerships, making this more than just an economic pact. Indian sectors such as textiles, gems & jewelry, pharmaceuticals and IT services will gain easier entry into the EU market. This could significantly raise India’s export earnings and reduce dependence on traditional markets like the US. The FTA is expected to attract European investment in Indian manufacturing and green technologies, supporting India’s “Make in India” and sustainability goals. India’s IT and professional services will benefit from improved mobility and recognition of qualifications, opening opportunities for Indian professionals in Europe. Expanded exports and investments will generate employment, especially in labour-intensive industries like textiles and handicrafts. However, this trade deal is not without its share of challenges. Indian exporters would be called upon to adapt to stringent EU regulations on sustainability, labour and product quality. Greater EU access to Indian markets may pose serious challenges to local industries, requiring policy support for small businesses. The deal is expected to be fully operational by 2026. Benefits of the deal is expected to unfold gradually. In short, the India–EU FTA is a transformative agreement that could reshape India’s trade landscape by expanding exports, attracting investment and strengthening its global economic standing, while also demanding higher compliances and competitiveness from Indian industries. Here is a toast to a deal; raising a toast to itself has become so much cheaper with duties on spirits set come down!
When I watched the presentation of the Budget, I was surprised to see that there was no pandemonium in the House. I had to pinch myself for self-assurance that I had tuned into the right channel. The Opposition made their presence felt by shouting for perhaps two minutes only at the fag-end of the Budget presentation when the finance minister had moved the motion. Either our representatives have learned to behave, or I am lost in the past. Be that as it may, it augurs well for our democracy if this behavior is continued. Predictably, every Parliamentary Session starts with pandemonium. It is difficult to believe that our law makers have finally learned the law, finally! There was one important innovation that I noticed. When the finance minister was reading out from the Budget papers, her boss was there in the adjacent frame acting out the intended messages and also thumping the desk applauding every proposal in the Budget. That is audio visual performance for you – audio and speech for the speaker and video and text for the presenter! Perhaps the time has come when the presentation of the budget has become a non-event, which it is. This year Finance Minister took one and half hours to complete her speech. By the time the Budget presentation was completed, there were a few thematic strains in some of the proposals. One theme that runs across the budget was rooted in our ethos – duty-driven progress: first kartavya is to sustain 7% plus growth via manufacturing in biopharma, semiconductors, and infra, the second builds skills in health, tourism, and AVGC (Animation, Visual Effects, Gaming and Comics); third kartavya ensures equity for farmers, Divyangan, and Purvodaya regions. PM’s visuals were intended to reinforce unity, portraying an aligned leadership towards a developed India. The Budget prominently features Ayurveda and AYUSH (Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy) as pillars of integrated healthcare, with proposals for infrastructure, research, and global outreach. At the end of it all, the Fiscal Deficit is expected to be an impressive 4.30%. However, no Budget can be complete without a dose of politics. That came in the form of a new train traversing through Tamil Nadu and Kerala, states that are going to polls in a few months.
While on the subject of Budgets, I noticed an important pivot in the context of the Union Budget 2026-27, a shift from the rigid annual fiscal deficit target to a Debt-to-GDP ratio to anchor a fundamental change in India’s fiscal philosophy. While the fiscal deficit measures the “gap” in a single year, the Debt-to-GDP ratio measures the country’s cumulative financial health and long-term solvency. Here are some of the key implications of introducing this metric for the Indian economy and its business landscape:
- Enhanced Counter-Cyclical Flexibility: Under a strict fiscal deficit regime, the government is often forced to cut spending during economic downturns to meet a numerical target, which can worsen an economy already in recession. By targeting a declining debt-to-GDP trajectory (currently aimed at 55.6% for FY27 and 50% by FY31), the government gains some “breathing room.” If a global catastrophe occurs, they can momentarily increase the annual deficit to support growth without “breaking” the fiscal rule, provided the long-term debt trend continues to show a downward trend.
- Focus on the “Quality” of Spending: The Debt-to-GDP ratio is sensitive to the denominator – the nominal GDP growth. To keep the ratio low, the government is incentivised to spend on high-multiplier assets (Infrastructure, R&D, and Digital Public Infra) that drive growth. This explains continuing with a massive ₹12.20 lakh crore capex target for 2026-27 for the government. However, there is a lurking trade-off here. Purely populist subsidies or revenue expenditures that do not contribute to GDP growth become harder to justify, as they increase debt without expanding the denominator.
- Capacity to Absorb External Shocks: With the tariff regime having become ever so unpredictable, the global trade environment has become increasingly hostile. A debt-based framework allows the government to utilise its balance sheet to protect domestic industries or fund strategic “Atmanirbhar” initiatives (like the ₹10,000 crore Biopharma Shakti over five years, for example) during periods of trade volatility, without giving the market an opportunity to penalise them for minor slipups in the annual deficit numbers.
- Impact on Borrowing Costs and Ratings: Sovereign Rating Agencies (like S&P and Moody’s) prioritise debt sustainability over yearly deficits. A credible path toward a 50% Debt-to-GDP ratio is more likely to result in rating upgrades, which helps to lower the “sovereign risk premium.” Lower sovereign borrowing costs eventually trickle down to the private sector, reducing the interest rates for corporate bonds and commercial loans too.
A debt anchor is no doubt a double-edged sword and needs careful and well calibrated financial management. Time horizons for fiscal deficits are normally one year whereas Debt to GDP ratio is for medium to long term. Another distinguishing feature between the two is that fiscal deficits are “rule bound” whereas targets anchored to Debt to GDP ratio is “trend bound”. Again, while focusing on growth, fiscal deficit targets tends to become a serious constraint, whereas the focus tends to enhancing the quality of spending when attention is shifted to Debt-to-GDP ratio. More importantly, the most critical differentiator between the two is what features each offers to the market. Fiscal deficit indices would have immediate liquidity impact, whereas Debt-to-GDP factor would cautiously point towards long term solvency and stability. Having said all this, one has to be cautious of the heavy burden it places on nominal GDP growth. If growth falters (due to global protectionism or domestic hurdles), the Debt-to- GDP ratio would swing wildly, despite strict government controls on its annual spending. However, at the end of the day, proof of pudding is in its eating. Let us see how it spans out eventually. John Maynard Keynes, the famous economist said once, “in the long run we are all dead”. He also said, “it is better to be roughly right than precisely wrong”.
Thank you.
Venkat R Venkitachalam
