BAJAJ BROKING
January 27, 2025
5 mins read
The upcoming Budget 2025 is extremely important from the viewpoint of India’s exports and imports. Moreover, Union Finance Minister Ms. Nirmala Sitharaman will present the budget just a few days after Mr. Donald Trump became the US President for the second time. Mr. Trump’s announcements indicate that his policies may affect global trade significantly. Hence, Budget 2025 may have some policies to protect India’s trade interests. Besides, the Budget 2025 is expected to boost local manufacturing and exports and reduce India’s imports.
The Union Budget is a milestone event from the viewpoint of export and import policies every year and this year is no different. The upcoming Budget 2025 will be announced at a time when Mr. Donald Trump is back as the US President. Mr. Trump has announced that his administration will impose taxes on the products of those countries that impose high tariffs on American products.
While it remains to be seen what Mr. Trump’s administration will exactly do, these thoughts may play a role in shaping India’s export and import policies when Union Finance Minister Ms. Nirmala Sitharaman presents Budget 2025.
For many years now, the Central Government has tried to boost domestic manufacturing to grow India’s exports and reduce dependence on imports. It is expected that Budget 2025 will announce policy initiatives in the same direction. For products that can be easily manufactured in India, the budget may tweak their duty structure to encourage local manufacturers and boost exports.
Why are Export & Import Policies a Key Focus Area?
There is no denying that export & import policies are a key area for the upcoming Budget 2025. These policies can play a huge role in giving a boost to India’s economic growth, international relations, and job creation. Currently, India’s import dependence is significant for many items, like medical devices, electronic items, white goods, toys, and railway manufacturing.
As India depends on other countries to import these items, it results in an outflow of foreign exchange reserves. Besides, when we import finished products, we do not have to manufacture them in our own country. Hence, it discourages local manufacturing and reduces India’s export potential.
Besides, Mr. Trump has already said that his administration will impose reciprocal tariffs on products of those countries that impose high tariffs on American products. As Mr. Trump has just begun his second term as the US President, it remains to be seen which policy direction he will take.
But, Budget 2025 needs to be mindful of the likely changes in global trade that can be caused by any possible changes in American policies. This is another reason why import and export policies are extremely important in the upcoming budget.
Role of Union Budget in Shaping Export & Import Policies
Previous budgets tried to boost local manufacturing and cut import dependence in many sectors. For example, in Budget 2022, Ms. Sitharaman increased import duties for those finished goods that can be manufactured domestically in India. Some of these goods included chemicals, medical devices, drugs, and agricultural produce. By increasing import duties on these items, the government wanted to make their imports more expensive because these items could be easily manufactured in India.
Expected Budget Allocations[1]
Policy Updates Likely to Impact Export & Import Policies
An Economic Times report said that industry leaders expect the Budget 2025 to give a boost to the “Make in India” campaign and reduce import dependence. The report further said that the Budget 2025 may remove some of the customs duty exemptions. If such exemptions are removed, imports will become more expensive. Besides, if the government gives incentives for local manufacturing of the items, which until recently were imported into the country, then local manufacturing and exports of those items will get a boost.
A news report of NDTV Profit said that the budget could increase custom duty on medical devices, washing machines, and dishwashers. However, the budget may reduce custom duty on inputs needed to manufacture some of these items. Hence, the budget is likely to give an impetus to domestic manufacturing and reduce India’s import dependence.
Further, a CNBC TV18 report said that the technology sector expects Budget 2025 to announce measures to support tech exports.
Finance Minister Ms. Nirmala Sitharaman has given a push to exports and attempted to curtail India’s import dependence through a series of measures announced in her previous budgets. For example, Budget 2024 reduced basic customs duty on down-filling material, which is used for manufacturing garments and accessories. This move made raw material imports cheaper for manufacturers to improve their competitiveness.
Budget 2024 also announced an allocation of ₹ 5,000 crore to create an export development fund meant for micro, small, and medium enterprises (MSMEs). Typically, many MSMEs do not have the resources to export their products globally. However, the export development fund is meant to help them sell their products in international markets to unlock their true potential.
Existing Issues in Export & Import Policies
Currently, India relies heavily on imports of certain items, like medical technologies, which makes healthcare expensive for a lot of people. This creates a problem because healthcare should be affordable for each and every Indian citizen.
Similarly, India imports a lot of toys, items related to railway manufacturing, and white goods from other countries. The challenge for the government is to tweak the duty structure in such a way that the local manufacturing of these items gets encouragement and their imports are discouraged. However, this can happen only if India has the ability to manufacture these items locally. Hence, the Government has to carefully analyse the local manufacturing capabilities before tweaking the duty structure.
With Mr. Trump back as the US President, there is a fair bit of uncertainty with regard to his trade policies. Besides, India has a huge trade deficit with China. It remains to be seen how Budget 2025 navigates through these issues by simultaneously ensuring that domestic manufacturing is encouraged and India’s trade interests are taken care of.
Industry Expectations to Overcome Hurdles
According to a report published in the Economic Times, industry leaders think that to promote domestic manufacturing, the Government must undertake a review of existing Free Trade Agreements (FTAs) with regions like ASEAN. Such a review must ensure that trade policies encourage domestic manufacturing. This is extremely important to diversify India’s trade with partners apart from the US and China, and the Budget 2025 can play a huge role in it. The same news report further said that the Indian Rupee is depreciating vis-à-vis the US Dollar and hence experts think that the government should make efforts to boost domestic demand to decouple India’s economic growth.
In simpler words, the Budget 2025 is expected to focus on giving a boost to India’s local manufacturing and demand so that our economy is robust domestically. Besides, as the ET report has highlighted, the experts want India to diversify its trade interests so that it does not depend too much on the US and China. Further, industry leaders expect the government to reduce dependence on imports and encourage local manufacturing of a variety of products.
For example, an Economic Times report highlighted that industry leaders expect Budget 2025 to incentivise the manufacturing of batteries through tax incentives and subsidies so that their imports can be reduced.
Typically, budget allocations are for an industry. Allocations are not for policies. Hence, I’ve not written content here.
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Stakeholders expect Budget 2025 to reduce India’s imports of certain medical devices and white goods so that their local manufacturing can get a boost. Industry leaders also expect the Budget to suggest measures to diversify India’s trade with countries apart from the US and China.
To encourage local manufacturing of medical devices and white goods, the Government can make their imports more expensive. However, before doing that, it will have to ensure that India has the capability to manufacture these items locally.
Like Budget 2024, Budget 2025 could also announce measures to make it easier for MSMEs to export their products globally, which will be in line with the commitment shown by the Government to encourage small businesses.
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