Dipak Kurmi
India’s latest Budget exercise reflects a concerted effort to reinvigorate its economic landscape, enhance global trade competitiveness, and fortify its strategic alliances. At a time when the Gross Domestic Product (GDP) growth rate exhibits signs of deceleration and private investments, along with domestic consumption, lack the robustness necessary to propel a high-growth trajectory, exports emerge as a pivotal factor in sustaining momentum. The imperative to access new markets necessitates reinforcing the competitiveness of Indian manufacturing exports, which hinges on reducing the costs of production—especially in an era marked by unilateral and reciprocal tariffs. With these concerns at the core, Finance Minister Nirmala Sitharaman, on February 1, unveiled a Budget that seeks to incentivize sectoral growth, stimulate investment across key economic components, and uphold the principle of inclusive development.
For the financial year 2025-26, the government has proposed an ambitious total expenditure exceeding Rs 11.21 lakh crore, with a substantial portion allocated to infrastructure and employment generation. The Budget is anchored in a vision of long-term transformation, introducing several key amendments to both direct and indirect tax regimes. These reforms underscore the necessity of simplifying compliance processes and fostering voluntary adherence to tax regulations. However, the most striking element of this year’s Budget, which has captured the attention of policymakers and trade experts globally, is India’s bold restructuring of its customs duty framework—an attempt to rectify a long-standing issue that has hampered the nation’s export competitiveness.
India’s exporters have long grappled with an inverted customs duty structure, an issue that has impeded their global competitiveness. Imposed largely on an ad-hoc basis, these duties often stemmed from specific demands for import protection but ended up distorting trade dynamics. By increasing the cost of imported inputs, these duty inversions inflated the production costs of Indian manufacturers, making final goods significantly more expensive than their imported counterparts. This paradoxical scenario rendered Indian products uncompetitive in international markets, thereby necessitating urgent corrective measures.
Recognizing this legacy of inefficiencies, the 2025 Budget seeks to harmonize customs reforms by implementing revisions that simplify the duty structure. Basic customs duties on numerous critical raw materials and industrial inputs have been either reduced or entirely scrapped. Noteworthy reductions have been introduced for components used in manufacturing LCD/LED television sets, capital goods essential for lithium-ion battery production, textile machinery, knitted fabrics, telecom equipment, specialty chemicals, plastic and jewelry parts, and key industrial metals such as copper, lead, and tin. Additionally, duties on solar modules, semiconductor devices, and photovoltaic cells have been rationalized, reflecting the government’s commitment to fostering high-tech and renewable energy industries.
In a move that preempts potential trade actions by the United States and other major economies, India has streamlined its tariff structure by reducing the number of duty slabs to eight. This simplification aims to create a more predictable and transparent trade environment, fostering a favorable investment climate. The Budget also fully exempts critical minerals—including cobalt powder, lead, zinc, and a dozen other essential materials—marking a strategic push towards augmenting India’s role in the global supply chain for advanced manufacturing. These measures, coupled with extended timelines for utilizing imported inputs, signal a forward-looking approach to boosting exports and securing India’s position in key global markets.
India’s recalibrated trade policies and customs revisions must be viewed in the broader context of its evolving economic relationship with the United States. The two nations share an increasingly symmetrical vision across multiple domains, including resilient supply chains, emerging technologies, and sustainable energy solutions. The realignment of India’s trade strategy not only reflects internal economic imperatives but also serves as a response to the dynamic shifts in global geopolitics, particularly in anticipation of US trade policies.
The Indo-US collaboration on critical and emerging technologies (CET) represents a cornerstone of their strategic partnership. India’s growing influence in semiconductor manufacturing, artificial intelligence, clean energy solutions, and critical mineral extraction aligns well with Washington’s objectives of diversifying global supply chains and reducing dependency on China. The signing of a Memorandum of Understanding (MoU) on the critical minerals supply chain last October complements the India-US Initiative on Critical and Emerging Technologies (ICET), further deepening their economic and technological engagement.
One of the most promising dimensions of this partnership lies in energy cooperation. The potential windfall from Indo-US collaboration in clean energy, climate resilience, and advanced technological domains is substantial. India’s ambitious nuclear energy program, which envisions generating 100 gigawatts of nuclear power by 2047—its centennial year of independence—could benefit immensely from deeper cooperation with the US. The recent Budget hints at legislative amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act, signaling India’s intent to attract investment in its nuclear sector. If these amendments are successfully enacted, they could unlock a new era of strategic cooperation between New Delhi and Washington, particularly within the framework of the Quadrilateral Security Dialogue (Quad), which also includes Australia and Japan.
While customs reforms and tariff reductions lay the groundwork for enhanced trade dynamics, their long-term efficacy hinges on institutionalizing a robust mechanism to evaluate and refine policy interventions. The India-US partnership must extend beyond trade facilitation to encompass investments in high-value sectors such as semiconductor fabrication, electric vehicle (EV) supply chains, and next-generation digital infrastructure.
The Budget’s trade provisions should be complemented by establishing a high-powered, dedicated committee tasked with assessing the impact of these customs revisions. This body should conduct quarterly reviews of India’s trade performance, with a specific focus on its exports to the US, to ensure that policy measures align with emerging economic realities. Additionally, India must leverage its strategic position within global supply chain networks to attract multinational enterprises seeking to diversify their production bases away from China.
India’s continued engagement with US investors and corporations will be instrumental in cementing long-term economic collaboration. Initiatives such as the Production-Linked Incentive (PLI) schemes for electronics and semiconductor manufacturing provide an attractive framework for fostering American investments in India. Expanding these initiatives to include critical minerals processing and advanced battery technologies could further solidify India’s role as a global manufacturing hub.
India’s 2025 Budget marks a decisive shift towards rectifying historical trade inefficiencies and fostering an export-driven growth model. By addressing structural distortions in customs duties, rationalizing tariffs, and reinforcing its commitment to international trade partnerships, India is positioning itself as a formidable player in the global economic arena. The recalibrated policy stance not only enhances the competitiveness of Indian exporters but also aligns with the strategic objectives of deepening economic ties with the United States.
The road ahead necessitates continued vigilance in assessing trade patterns, refining policy frameworks, and expanding cooperation in emerging technologies. India’s proactive stance in engaging with the US on critical economic and strategic fronts underscores its commitment to navigating the complexities of the global trade environment while ensuring long-term, sustainable growth. The coming years will be crucial in determining how effectively India translates these policy reforms into tangible economic gains, but one thing is certain—this Budget has set the stage for a transformative era in Indo-US trade and investment relations.
(The writer can be reached at dipakkurmiglpltd@gmail.com)
