US President Donald Trump's return to office came with a flurry of executive orders, but experts believe they are unlikely to throw India's Budget off course. The Indian government has reportedly been proactive in factoring in potential shifts in US trade policy.
However, with global inflationary pressures looming, Finance Minister Nirmala Sitharaman may have to tread carefully while finalising the Budget, which is set to be unveiled on 1 February.
Trump's 'America First Trade Policy' brings a wave of protectionist measures, including new "supplemental tariffs" aimed at addressing what he calls "unfair and unbalanced trade". Notably, he has issued a stern warning to BRICS nations, including India, with a potential 100 per cent tariff if they attempt to reduce their dependence on the US dollar for trade.
According to a Business Standard report, economists suggest that India's policymakers have been bracing for such measures since the US election results in November. As a result, the Budget planning process has already incorporated potential economic ripple effects.
Rajani Sinha, chief economist at CareEdge, mentioned to Business Standard, "So far, no specific details have emerged that would warrant a course correction in the Budget. The challenge lies in balancing domestic competitiveness with global trade integration."
Sinha believes import duty cuts are unlikely, with the government expected to adopt a measured approach to lowering input costs. Meanwhile, Vivek Kumar of QuantEco Research reportedly noted that India's key commitments, particularly in areas like climate and health, are unlikely to waver despite changes in US policy.
Bloomberg reports indicate that India is exploring several responses, such as negotiating a trade deal with the US, adjusting tariffs, or increasing imports from American markets if Trump's policies take effect.
Additionally, Trump's move to impose a 25 per cent tariff on imports from Mexico and Canada, effective from 1 February, could have broader implications. Madan Sabnavis, Chief Economist at Bank of Baroda, reportedly warned that such restrictions might push up wages by tightening labour supply from Mexico, which could, in turn, influence commodity prices. India's Budget planners are expected to have accounted for these potential cost pressures.