Modi Takes Aim at Trump Threats With Budget to Shield India

In a dramatic response to tariff threats and trade pressure from U.S. President Donald Trump, Indian Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman unveiled the 2026–27 Union Budget on Feb. 1, 2026, prioritising strategic protection for India’s economy in a shifting global order. �
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The budget—often described as a shield-building exercise for India’s economy—comes as ongoing U.S.–India trade tensions escalate, including steep U.S. tariffs imposed on Indian goods and the risk of more punitive measures that could hit everything from textiles to manufactured exports. �
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Tariff Challenges From the U.S.
Since 2025, the Trump administration has leveraged tariffs as a tool of trade policy, imposing duties on Indian imports—particularly in labour-intensive sectors—and reportedly even asked the European Union to join in punitive tariffs on India and China. �
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Although neither leader names the other when discussing trade policy in official speeches, India’s budget strategy was clearly shaped by these external pressures. That includes U.S. tariffs—some targeted at India’s purchases of Russian oil and other strategic imports—which have dented competitiveness for Indian farmers and exporters alike. �
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Budget Focus: Economic Resilience and Strategic Investment
1. Boost for Exporters and Strategic Sectors
The budget includes measures aimed directly at countering tariff impacts and supporting exporters:
Targeted relief for sectors hit hardest by U.S. tariffs, especially labour-intensive industries like textiles and furniture.
Duty exemptions and incentives designed to make Indian exports more competitive abroad.
Expansion of support for rare earths, semiconductors, biopharmaceuticals, and critical minerals—sectors central to future global supply chains. �
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2. Strong Infrastructure and Modernisation Push
India’s 2026–27 budget also allocates record funding toward long-term growth drivers:
A nearly 9% jump in capital expenditure to expand infrastructure, manufacturing capacity, and core industries.
Incentives for cloud computing, data centres, and semiconductor fabrication that aim to attract global investment and reduce dependence on foreign supply.
Significant increases in defence spending—up by double digits—strengthening India’s strategic posture amid geopolitical uncertainty. �
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3. Keeping Fiscal Discipline While Responding to External Pressure
Despite these strategic outlays, the government largely avoided broad tax cuts or unfunded spending booms, sticking instead to a balanced approach that maintains fiscal discipline and debt targets—a key credit-rating and investment consideration. �
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That cautious stance reflects concerns about global economic volatility, the impact of external headwinds, and the need to counter risks without destabilising India’s economic fundamentals.
Self-Reliance and “Atmanirbhar Bharat” as Core Themes
Modi has long championed the idea of self-reliant India (Atmanirbhar Bharat)—an economic vision that traces back to domestic-manufacturing goals and resilience against global shocks. This budget deepens that focus by reinforcing:
Domestic value chains for high-technology and strategic industries.
Policies aimed at reducing reliance on imports that could be hit by foreign tariffs or supply disruptions.
Support for micro, small and medium enterprises (MSMEs), often most vulnerable to tariff shocks, through dedicated growth funds and cluster revitalisation programs. �
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Economists say the strategy is designed not only to cushion India from external trade shocks but also to position the country as an alternative manufacturing hub to China—an increasingly attractive narrative for global investors. �
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Market and Political Reactions
The budget’s reception has been mixed:
Investors reacted nervously to tax hikes in areas like equity market transactions, triggering short-term stock market volatility.
Some analysts argue that while the budget strengthens resilience, it lacks bold reforms needed to significantly accelerate growth and fully counter external pressures. �
Reuters
Politically, the budget also sends a message: that India will not be easily diverted from its chosen path of economic reform and global engagement, even in the face of protectionist pressures.
Trade Diplomacy and Global Partnerships
In parallel with domestic policy, India is also pursuing strategic trade partnerships to offset U.S. tariff pressure. A major free-trade agreement with the European Union—called by some observers the “mother of all deals”—was completed after nearly two decades of negotiation late in 2025, offering new export opportunities for Indian firms. �
The Times of India
Earlier, similar agreements with the UK and New Zealand boosted India’s market diversification strategy. These diplomatic trade moves are complementary to the budget’s push for economic resilience.
Looking Ahead: Balancing Growth and Geopolitical Pressures
Modi’s 2026–27 budget marks a critical moment in India’s economic strategy:
It signals strategic readiness to withstand external shocks—including tariffs from the U.S.—without sacrificing long-term growth goals.
It reinforces a self-reliance narrative that dovetails with global supply-chain realignment and the push for manufacturing-led growth.
It highlights India’s determination to remain integrated with global markets while building internal buffers against geopolitical and trade risks. �
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As global trade tensions continue, observers will be watching how India balances domestic growth imperatives with the need to manage relations with major partners like the United States. For now, the Modi government’s budget represents a clear attempt to shield the economy from looming risks while charting a path toward a stronger, more diversified future.