24 January, 2025

Donald Trump’s return to the White House is already sending ripples across the globe. His inauguration and immediate executive orders, as reported by Business World, signal a potentially turbulent period for international trade and economic relations. While India may not be in the direct line of tariff fire, the shifting global landscape necessitates a robust domestic strategy, and the upcoming Union Budget on February 1st becomes all the more critical in this context.

Trump Era Dawns, Again

Trump’s protectionist agenda, highlighted at the World Economic Forum, is no longer just rhetoric. His focus on boosting American manufacturing and his stance on global trade mean tariffs and trade disputes are likely to become more frequent. For India, External Affairs Minister S. Jaishankar’s assessment that the Trump administration prioritises India offers some comfort. However, in an interconnected world, global headwinds will inevitably impact us. Foreign investors are already wary, and this uncertainty is not ideal for our markets.

Budget as a Fortification Tool

The Indian economy is currently experiencing a cyclical slowdown, with GDP growth projected to dip. The best approach to navigate external pressures is to strengthen our internal capabilities. The Union Budget presents a golden opportunity to act as a shock absorber. Boosting domestic consumption and investment is paramount. Capex spending, where the government has room to improve, must be a priority. This fiscal push is essential to counteract global uncertainties and ensure the economy remains on a growth trajectory.

Inflation Bites Tax Relief

Domestically, another crucial factor is inflation, as highlighted by The Hindu Business Line’s analysis of tax reforms. While the government has introduced a new tax regime with lower rates, the real value of traditional deductions and exemptions is eroding due to inflation. Deductions under Section 80C and for home loan interest, for instance, haven’t kept pace with the rising cost of living. Many developed economies adjust tax slabs and exemptions for inflation annually to maintain taxpayers’ real income. India might need to consider similar mechanisms to ensure tax benefits retain their intended impact and support spending capacity, especially for the middle class.

A Budget to Buffer

The Union Budget, therefore, must be more than just an annual financial statement. It needs to be a strategic document that fortifies the Indian economy against global volatility and domestic pressures. By focusing on enhancing domestic demand, boosting investment, and addressing the impact of inflation on taxpayers, the budget can act as a vital buffer, ensuring India remains resilient in an increasingly uncertain global environment. Can the Finance Minister deliver a budget that truly acts as an economic shock absorber? We will know soon enough.

Excerpt: Trump’s presidency and global uncertainties put India’s economy in focus. The upcoming Union Budget needs to act as a shock absorber, boosting domestic strength.

Meta: Trump’s policies and global economic shifts require India to fortify its economy. Union Budget 2025 is crucial for boosting domestic resilience.

Indian Budget Session Parliament, Finance Minister briefcase Budget, Reserve Bank India Mumbai building