Finance Minister Nirmala Sitharaman may have to consider Donald Trump’s persistent argument that Bharat is a high-tariff destination for American goods. More importantly, his decision to group Brazil and Bharat with China for imposing high tariffs to balance trade may be at the forefront of discussions. A bilateral trade deficit of $32 billion that the US has with India in total trade worth $118 billion in 2024 is the big trigger for ‘transactional’ Trump, who is expected to push hard for ‘rebalancing’ trade transactions. This is the biggest factor behind Trump’s threat to impose a blanket tariff exceeding 2.5 percent on all Indian goods and services, along with a push for increased sales of American defense equipment.
A potential solution could emerge when Prime Minister Narendra Modi meets Trump during his visit to France next month. Beyond this, Finance Minister Sitharaman will likely consider the Commerce Ministry’s analysis of all economic issues raised by Trump during his inauguration as President on January 20, as well as his virtual address at the Davos World Economic Forum the following day. This will inevitably factor into Sitharaman’s calculations on oil prices, the US dollar, and Indian rupee valuation, in addition to her fiscal deficit projections, which are expected to align with her announcement in the last budget a couple of months ago.
In line with Donald Trump’s ‘Make America Great Again’ campaign, the European Union’s push for a ‘Make Europe Great Again’ agenda may have implications for large developing economies such as Bharat, Brazil, and South Africa. The 27-nation bloc and Trump may have taken inspiration from Prime Minister Modi’s ‘India First’ or ‘Bharat First’ campaign, which mobilized Hindutva or Bharatiya forces not only at the political level but also on the socio-economic front.
Although European Commission President Ursula von der Leyen maintains that Europe is already great, she has commissioned a report on the EU’s competitiveness from Mario Draghi to provide a firm roadmap for sustaining healthy growth rates over the next 25 years. This reassessment will undoubtedly impact Asian exporters, including India, which is emerging as a significant player in both investments and trade. Serious conversations within the European Union regarding the end of its dominance in automobiles, the emergence of China as a major player in both the automobile industry and artificial intelligence, and the non-availability or limited access to cost-effective oil from Russia will have to be factored in by Nirmala Sitharaman as she fine-tunes Bharat’s roadmap to 2047.
The Union Budget is undoubtedly a significant occasion to reflect, assess, and develop a forward-looking economic policy framework in light of the global realignment of power—China and Russia moving closer, the ongoing debate between capitalism and communism, and the ideological spectrum ranging from conservatives to liberals, Left of center to far-right politics, both within and outside the country. As one may recall, the Narendra Modi government has astutely deployed every penny over the past eleven years to win the hearts of 1.4 billion people. Even without securing a majority in the Lok Sabha in last June’s elections, Modi and his economic policy team, led by Nirmala Sitharaman, have neither diminished nor deviated in the slightest.
This eleventh-year budget of the BJP-led NDA will be no different. Fiscal consolidation, prudent spending, the continuation of a well-structured taxation policy, and an expanded safety net covering more vulnerable sections under the ambit of Bharat’s famed ‘growth story’ will be evident both in vision and execution. Expanding the scope of the highly successful Production Linked Incentives (PLI) scheme, introduced in 2020, would not only expand the industrial base and create new job opportunities but also offer an excellent platform for foreign investors. To date, foreign investment of about Rs. 1.32 lakh crore ($16 billion) has been realized, leading to a massive increase in manufacturing output to Rs. 10.90 lakh crore ($130 billion). Over 850,000 jobs have been created due to this industrial expansion under the scheme alone.
‘Make in India’ and ‘Make for the World’ are great policy slogans that have stood the test of time for the Modi government. The framework for the scheme, where both foreign and domestic investors contribute, must be expanded across sectors, especially defense and security, to fully exploit the potential for investment, technology, and job creation. Finance Minister Nirmala Sitharaman will need to announce the Modi government’s policy framework for managing Artificial Intelligence (AI), such as DeepSeek and Qwen, developed by China, with its alignment with the Chinese Communist Party (CCP). Already, there are sufficient indications that the AI Compute Facility, which secured 18,000 GPUs, will drive the artificial intelligence initiative that is ‘open-sourced, application-focused, and flexible’. Data privacy and data localization policies may need to be integrated to ensure that our artificial intelligence initiative aligns with the country’s diverse needs.
The quick investment and development of ‘generative’ artificial intelligence networks may need to be prioritized by the Modi government, and a dedicated mission may need to be set up to develop a framework to address these issues. Nirmala Sitharaman may need to opt for policy reforms to accelerate governance that eases the ‘way of living’ and enhances ‘living standards’ for people in rural and semi-urban areas. Bringing an equivalent focus to the middle and lower-middle classes, in addition to the most vulnerable sections, into the ambit of the budget and economic policy-making will also be a saleable proposition for the finance minister.
Given the kind of direct cash benefits announced in various states as part of the competitive political slugfest, these may need to be addressed immediately to foster a healthy work culture that enhances productivity in industry, agriculture, services, and allied sectors. From free power and heavily subsidized gas to cash offers, both Opposition parties and ruling NDA partners have gone for the kill in different states. Striking a balance between direct cash offers and investment-driven growth is something Nirmala Sitharaman will need to attempt, although it’s a bit tricky and not easily acceptable to the political class.
The 2025-26 budget spending, expected to be around Rs 50 lakh crore, may not bring many surprises, but it may continue with fiscal prudence while still achieving growth of over seven percent. Reining in the fiscal deficit to 4.4 percent by March 2026, from a possible 4.9 percent this fiscal year, and limiting borrowings is achievable. Given the buoyancy in both direct and indirect taxes, coupled with a massive RBI dividend of $25 billion, the finance minister will have the elbow room to invest in rural infrastructure, stimulate consumption demand, and provide an investment push amid negative global uncertainties. Overall, it would be a mixed bag. However, it’s the right time for innovation coupled with bold measures.
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