Not for nothing they call America's president the most powerful man on earth! And when the person adorning that position is someone as shapeshifting as Donald Trump, it is but given that the shadow will loom large ominously over the last-minute fine-tuning of India’s Union budget, scheduled for Saturday.
India’s trade is right now in a pickle. For all the push for ‘Make in India’ and moving out of China’s shadow, getting Apple to manufacture in India et al., the results have been most unsatisfactory. Manufacturing exports actually declined in December, with India’s negative trade balance ballooning from less than 3 per cent in 2023 to nearly 7 per cent last year. Meanwhile, imports from China, for all the bravado about post-Ladakh clashes ‘atmanirbharta’ are spiralling.
As such, the fall in consumption and the rise in food inflation have seen India’s GDP growth slowing down from above 8 per cent last financial year to just 5.4 per cent last quarter. Adding to the misery, the dollar’s strong showing has weakened India’s traditional saving grace of services exports, with the Indian Rupee falling to its lowest level ever over the past few weeks.
So, the worst thing that could happen was a tough-talking president in the Oval Office having Indian trade in his cross-hairs. Even before his inauguration, Trump had levelled allegations at India misusing its trade relations with the US.
Once in power, Trump sounded even more relentless, targeting anything from illegal Indian migrants to how India is taking unfair advantage of its trade balance with the US. On the phone with Modi on Monday, he reiterated the need to move towards a fair bilateral trading rapport, with plans to meet up in February in Washington.
The message was clear: India needs to buy more from the US, especially arms and aircraft. The fear now is that in Trump’s carpet-bombing of anything he perceives as against ‘fair’ bilateral trade, India’s top exports to the US, like pharma products, gems and jewellery etc may bear the brunt. With India’s manufacturing exports already under a cloud, that could be the veritable last straw breaking the camel’s back.
That is where the budget comes in, as a pacifier and setting the right intent. The concessional tax rate for those setting up new manufacturing in the country had expired last year; many believe Finance Minister Nirmala Sitharaman might just reinstate it come February 1. It could well be a win-win for PM Modi, who can sell it as part of his larger vision to catalyse domestic manufacturing.
At least was a face-saving measure, Sitharaman can hark on precedent, having already offered in her budget speech in July 2024 to do a comprehensive review of trade tariffs. The time for that is now, particularly for dairy and wheat imports from the US, as of course, arms and military equipment.
Of course, how Sitharaman rolls the tariff easing to placate the US and ensure Trump goes all ‘wild west’ with preemptive tariffs, while at the same time ensuring that such relief does not lead to India being flooded by cheap Chinese goods and components, will require quite some dexterity on the finance minister’s part.
