Donald Trump’s re-election as the US President has brought his “America First” economic policies back into focus. These policies aim to benefit the US economy but can have significant ripple effects on global economies, including India. With Budget 2025 on the horizon, the Indian government must carefully navigate the challenges posed by Trump’s policies to maintain economic stability and growth.
Let’s explore how Trump’s second term might influence India’s economic decisions and priorities.
Tariff Wars and India’s Trade Challenges
Under Trump’s “America First” policy, the US has increased tariffs on imports to protect domestic industries. In his first term, Indian exporters faced difficulties due to the removal of the Generalized System of Preferences (GSP), a trade benefit for developing countries.
If Trump continues to impose higher tariffs on Indian goods, it could hurt India’s exports. Key sectors like textiles, pharmaceuticals, and automotive components might face reduced demand in the US market. This can widen India’s trade deficit and pose challenges for the government while drafting Budget 2025.
Key Implications for Budget 2025:
- The government may introduce export incentives to support affected industries.
- Greater focus on bilateral trade agreements to counter tariff-related losses.
Currency Weakness and Rising Inflation
The global uncertainty caused by Trump’s policies can weaken emerging market currencies like the Indian rupee. A weaker rupee increases the cost of imports, leading to higher inflation. Essential goods like crude oil, machinery, and electronics may become more expensive, directly impacting household expenses.
For Finance Minister Nirmala Sitharaman, curbing inflation will be a critical focus while designing Budget 2025. Measures to promote domestic production and reduce reliance on imports could be prioritized.
Key Government Strategies:
- Reduction in import duties on essential goods.
- Increased allocation for domestic manufacturing under schemes like Make in India.
Impact on the Indian IT Sector and H-1B Visa Restrictions
The US IT market is a major source of revenue for Indian companies. In his first term, Trump introduced stricter H-1B visa norms, making it difficult for Indian IT professionals to work in the US. If similar restrictions are imposed again, it could hurt India’s IT sector, which is a key contributor to foreign exchange earnings.
Indian IT companies may face reduced profitability and limited access to skilled professionals in the US. This will force India to rethink its approach to skilling and employment generation.
Possible Budget Responses:
- Increased investment in skilling initiatives to expand the domestic IT talent pool.
- Policies to support IT companies in exploring alternative markets like Europe and Asia.
Reduced Foreign Aid and Its Effect on Development Projects
Trump’s administration has also proposed significant cuts to foreign aid, including funding for programs in developing countries. For India, this could mean reduced support for projects backed by agencies like USAID.
While India has made strides in reducing its reliance on foreign aid, such cuts could still impact specific social and infrastructure programs. Budget 2025 might need to account for this gap by allocating additional resources to these projects.
Government Focus Areas:
- Enhanced budgetary support for rural development and healthcare programs.
- Public-private partnerships to attract alternative funding sources.
BRICS and Diplomatic Challenges
Trump’s tough stance toward BRICS nations, including India, could affect trade and diplomatic relations. Restricting trade with BRICS countries might disrupt India’s export and import flow, creating new economic hurdles.
To counter this, the Indian government may focus on strengthening regional trade agreements and diversifying export markets.
Key Budgetary Considerations:
- Increased emphasis on ASEAN trade partnerships.
- Financial incentives to encourage export diversification.
Strengthening Domestic Industries Amid Global Competition
Given the uncertainties posed by Trump’s policies, India will need to double down on strengthening domestic industries. Promoting self-reliance through initiatives like Atmanirbhar Bharat could help mitigate the effects of external shocks.
Government Measures for Domestic Growth:
- Expanded production-linked incentive (PLI) schemes for key sectors.
- Tax benefits and subsidies for small and medium enterprises (SMEs).
- Increased spending on research and development (R&D).
