India’s budget aims to shield economy amid US trade pressure

India’s most recent national budget is intended to shield the economy from the growing strain of US trade moves, particularly tariffs imposed under President Donald Trump. 

The budget, delivered on Sunday, outlines how the Prime Minister Narendra Modi’s government plans to maintain growth, bolster critical sectors, and help the country prepare for a more volatile global trading environment. The budget provides significant support to exporters affected by US tariffs, as well as new financing for priority sectors, including semiconductors, rare-earth minerals, and critical resources. 

The government also announced additional infrastructure spending and an 18% increase in defense expenditure, amid fears over security challenges posed by China and Pakistan. The government also shied away from lavish spending or sweeping tax cuts. 

It largely adhered to its debt targets and kept overall spending in check, a cautionary sign amid Modi’s party gearing up for crucial state elections. Ashok Malik of The Asia Group has said that the budget is designed to “insulate India while being watchful for global headwinds,” rather than push aggressive economic stimulus.

Shares broadly slumped in the wake of the budget announcement — a pullback that investors blamed on a tax hike on equity-market transactions to curb speculation, rather than overall dissatisfaction with the new spending plan. The government also plans to borrow more in the coming fiscal year than the market had expected, a move that’s likely to pressure the bond market on Monday.

Trade tensions force shifts in India’s economic strategy

Finance Minister Nirmala Sitharaman said India is operating in a difficult global environment where trade systems are under strain and supply chains are being disrupted. Though she did not specifically mention the US, the budget clearly addresses recent American trade moves, including a 50 percent tariff imposed since August. The tariffs, which are associated with some of India’s purchases of Russian oil, have been a burden on labor-intensive sectors like textiles and furniture.

To reduce vulnerability, the government is pressing for greater self-reliance. Recent measures include cutting consumption taxes to boost domestic demand, reforming labor laws to give businesses greater leeway, and opening sectors such as nuclear energy and finance to private investment. Economists say the reforms seek to lift productivity and facilitate business in India. 

Modi’s secondary strategy has been to improve trade relations to offset the US threat. Last week, after nearly two decades of talks, India and the European Union announced the completion of a free-trade agreement, giving exporters on both sides some reprieve from Trump’s tariffs. Last year, India also signed trade pacts with the UK and New Zealand.

India prioritizes self-reliance and new trade partners

The budget expects new investments to be deployed toward building local capacity in the semiconductor manufacturing, pharmaceutical, and rare-earth minerals sectors, it said. Particular attention is paid to mineral-rich areas of eastern and southern India, and plans are to help develop mining, processing, and manufacturing. 

The steps, they say, will be crucial for developing a resilient industrial base in an era of uncertainty. In addition to self-reliance, India is also working to reduce its dependence on the United States by expanding trade ties with other countries. India has recently joined the European Union, seeking to secure free trade with the EU, and has made similar deals with the UK and New Zealand last year. 

But the government anticipates that the economy will grow between 6.8% and 7.2% next year, although many analysts predict it will be weaker. Opposition leaders say the budget is insufficient to address youth unemployment or low household savings. So far, the government is primarily concerned with helping the economy weather global uncertainty while managing public finances.

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