Prime Minister Narendra Modi's latest budget announcement serves as a calculated response to the escalating trade tensions ignited by US President Donald Trump's tariffs. Unveiled on Sunday, the plan prioritises economic resilience, with targeted support for exporters reeling from a 50 per cent duty imposed since August, reported Bloomberg.

This tariff, ostensibly aimed at curbing India's purchases of Russian oil, has severely impacted labour-intensive sectors such as textiles and furniture, India's largest trading partner in the United States now posing an unprecedented challenge.

The budget introduces fresh allocations for infrastructure development, underscoring a commitment to long-term growth. Coupled with this is an 18 per cent increase in defence expenditure, positioning India to fortify its strategic defences against dual adversaries: China and Pakistan. This hike signals a proactive bulwark, enhancing military readiness amid border skirmishes and regional instability.

Despite these ambitious proposals, the government has adhered strictly to its debt targets, avoiding expansive tax cuts seen in the previous year.

Overall outlays remain controlled, reflecting caution ahead of pivotal state elections where Modi's Bharatiya Janata Party faces stiff opposition. Analysts describe this as a 'holding operation', designed to insulate the economy from global headwinds without overextending fiscal resources.

Finance Minister Nirmala Sitharaman set a sombre tone in her 90-minute parliamentary address, highlighting an 'external environment' where trade and multilateralism are under threat. She emphasised the disruptions to resources and supply chains, urging India to deepen global integration through increased exports and stable investments. This rhetoric, though not naming Trump explicitly, underscores the budget's tailoring to counter American protectionism.

India's strategy pivots on self-reliance, or Atmanirbhar Bharat, to crisis-proof its economy. Last year's consumption tax reductions boosted domestic spending, while labour law overhauls streamlined hiring and firing. Further openings in nuclear and financial sectors have invited foreign investment, with economists praising the ongoing focus on productivity, deregulation, and ease of doing business.

To diversify trade dependencies, Modi has aggressively pursued new pacts. Just last week, after two decades of talks, India finalised a free-trade agreement with the European Union, offering exporters relief from US tariffs. Complementary deals with the United Kingdom and New Zealand, sealed last year, further broaden market access and mitigate the fallout from America's inward turn.

The budget allocates new funds to strategic sectors, including semiconductor and pharmaceutical manufacturing. A dedicated initiative targets mineral-rich eastern and southern states to ramp up mining, processing, and production of rare earth minerals—critical for electronics, defence tech, and green energy. Mahindra Group's CEO hailed these as 'forward-looking' for building a resilient industrial base amid global volatility.

Defence modernisation receives a significant boost, with the 18 per cent expenditure rise funding indigenous capabilities in missiles, drones, and aerospace. This aligns with India's push against reliance on imports, particularly from rivals, while countering China's assertiveness in the Indo-Pacific and Pakistan's proxy threats. Infrastructure spending complements this, improving logistics for rapid military deployment.

Market reactions were muted, with shares slumping post-announcement. Investors attributed the dip to a new tax on equity transactions aimed at curbing speculation, rather than broader discontent. Higher-than-expected government borrowing for the fiscal year ahead is set to strain bond markets, potentially raising yields on Monday.

Growth projections vary: the government eyes 6.8 to 7.2 per cent for the coming year, but market consensus tempers this at 6.6 per cent. Critics, including opposition leaders, decry the plan as lacklustre, arguing it sidesteps youth unemployment and dwindling household savings—pressing issues for India's demographic dividend.

Geopolitical risks amplify these concerns. Trump's tariffs disrupt a 'straight-line' growth trajectory, as one consultant noted, compounded by supply chain fractures and resource nationalism. Modi's calibrated approach prioritises fiscal discipline, betting on reforms to generate the millions of jobs needed annually.

Self-reliance extends to critical minerals, vital for batteries, renewables, and defence electronics. By empowering states like Odisha and Andhra Pradesh, the budget fosters a domestic ecosystem, reducing vulnerability to Chinese dominance in global supply chains—over 80 per cent of rare earths currently.

In defence, the outlay hike supports ongoing indigenisation under initiatives like Make in India. Projects at firms linked to Hindustan Aeronautics and Bharat Electronics—such as advanced fighters and radar systems—gain momentum, bolstering deterrence against Pakistan's missile advancements and China's hypersonic edge.

Trade diversification yields early wins: the EU deal slashes duties on Indian goods, potentially adding billions in exports. UK and New Zealand pacts open doors for services and agriculture, offsetting US losses estimated at over $10 billion annually.

Fiscal prudence avoids populist splurges, maintaining India's investment-grade rating. Borrowing rises modestly, but bond market pressures could elevate costs, squeezing private credit.

Long-term, the budget embeds India in a multipolar world. By courting Europe and the Commonwealth, Modi hedges against US unpredictability, while defence investments signal resolve to regional foes.

Opposition voices amplify valid critiques: structural unemployment affects over 40 million youth annually, and savings rates hover near historic lows. The budget's restraint may stabilise but not ignite growth.

Finally, this is Modi's playbook for uncertain times—self-reliant, diversified, and defensively robust. Success hinges on execution amid tariffs, rivalries, and domestic polls.

Based On Bloomberg Report