PM Modi uses budget to blunt Trump’s trade pressure on India
Prime Minister Narendra Modi’s strategy to protect India’s economy from US President Donald Trump’s tariff pressure came into sharper focus with the Union Budget unveiled on Sunday, which prioritised defence, infrastructure and strategic industries while avoiding fiscal excess.
The budget offered targeted support to exporters hit hard by US tariffs and boosted funding for critical sectors such as rare earths, semiconductors and key minerals—areas seen as vital in an increasingly fragmented global economy. It also promised fresh infrastructure spending and an 18% increase in defence expenditure, aimed at strengthening India’s position amid security challenges from China and Pakistan.
Despite the geopolitical backdrop, the government largely adhered to its fiscal discipline, sticking to debt targets and keeping overall spending in check. Unlike last year, the budget avoided broad-based tax cuts and refrained from major populist giveaways, a cautious approach taken as the ruling party prepares for difficult state elections.
Markets reacted negatively in the immediate aftermath of the budget, with stocks slipping amid concerns over a tax hike on equity transactions aimed at curbing speculation. The government’s plan to borrow more than expected in the coming fiscal year also weighed on investor sentiment.
Setting the tone for the budget, Finance Minister Nirmala Sitharaman warned Parliament of an external environment where “trade and multilateralism are imperilled” and supply chains increasingly disrupted. She stressed the need for India to stay deeply integrated with global markets, expand exports and attract long-term investment.
While Trump was not mentioned by name, the budget was clearly framed to counter the impact of a 50% US tariff imposed since August, partly linked to India’s purchase of Russian oil. The duties have hit labour-intensive sectors such as textiles and furniture, adding pressure to exporters.
Modi’s response has focused on crisis-proofing the economy through greater self-reliance. Over the past year, his government cut consumption taxes to boost domestic demand, reformed labour laws, and opened sensitive sectors such as nuclear energy and finance to investors.
“The reformist agenda continues, with a focus on productivity, deregulation and sector-specific ease of doing business,” said an economist tracking the policy changes.
Alongside domestic reforms, India has moved to strengthen alternative trade partnerships. After nearly two decades of talks, India and the European Union recently concluded a free trade agreement, offering exporters relief from US tariffs. New Delhi has also finalised trade deals with the UK and New Zealand, part of a broader effort to reduce dependence on any single market.
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