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The Union Budget 2025, unveiled against the backdrop of global economic headwinds, aims to strike a delicate balance between ambitious growth objectives and fiscal prudence, setting the course for India’s economic trajectory in the years ahead. Faced with the dual challenge of sustaining economic momentum—amidst GDP growth projections slowing to 6.4 percent for FY 2024-25—and addressing external vulnerabilities such as the current account deficit (CAD), the government has also prioritised enhancing the domestic business environment to attract foreign investments. The budget’s focus is twofold: it seeks to invigorate economic growth through targeted fiscal measures while promoting inclusive development and addressing structural bottlenecks that hinder productivity.
By strategically balancing internal markets with external trade dynamics, it seeks to strengthen India’s global trade footprint through initiatives aimed at reducing import dependence, diversifying export markets, and enhancing manufacturing competitiveness.
Budget 2025 has made significant headway across the country, being lauded as a catalyst for stimulating consumption demand—a fundamental driver of India’s growth story. Its emphasis on boosting domestic spending through tax relief measures, targeted subsidies, and welfare programmes underscores the government’s commitment to fostering consumption-led growth. Yet, this focus on domestic demand does not diminish the budget’s robust thrust towards export-led growth. By strategically balancing internal markets with external trade dynamics, it seeks to strengthen India’s global trade footprint through initiatives aimed at reducing import dependence, diversifying export markets, and enhancing manufacturing competitiveness.
Tackling current account deficit (CAD)
India’s current account deficit (CAD) is a key measure of its economic health, reflecting the balance between exports and imports of goods, services, and capital. As of late 2024, India's CAD has shown signs of narrowing. In the July-September quarter, the CAD stood at US$11.2 billion, or 1.2 percent of GDP, a slight improvement from US$11.3 billion (1.3 percent of GDP) in the same period the previous year. This reduction is largely attributed to a rise in services exports, particularly in sectors like computer, business, travel, and transportation services. However, the trade deficit in goods remained a concern, driven by rising gold imports, fluctuating global commodity prices, and the depreciating rupee, which made imports more expensive.
The Atmanirbhar Bharat initiative played a key role, aiming to expand local manufacturing in sectors like electronics, semiconductors, and pharmaceuticals.
Budget 2025 attempted to tackle these challenges by focusing on reducing import dependence, not just as a defensive move but as a way to boost domestic industries, create jobs, and strengthen economic self-reliance. The Atmanirbhar Bharat initiative played a key role, aiming to expand local manufacturing in sectors like electronics, semiconductors, and pharmaceuticals. The budget also encouraged the diversification of export markets to reduce reliance on traditional trade partners. Increasing the value of exports in sectors like traditional textiles, toys, automotive, and agribusiness was central to this strategy. Import substitution, especially in energy, defence, and capital goods, was promoted to curb the trade deficit and build long-term resilience against global supply chain disruptions.
Growth engines driving trade balance
India’s economic growth strategy, as outlined in Budget 2025, relies on four key engines—agriculture, MSMEs, investments, and exports. These engines work together to strengthen the economy, reduce the current account deficit, and promote sustainable growth. Agriculture, the foundation of India’s economy, received a major boost through initiatives like the ‘Prime Minister Dhan-Dhaanya Krishi Yojana.’ This programme focused on improving productivity, diversifying crops, and achieving self-sufficiency in key areas. A standout example is the creation of the Makhana Board, aimed at increasing the production and export of Makhana, which has gained popularity globally as a healthy snack. By reducing reliance on agricultural imports and promoting exports, these initiatives helped improve the trade balance. Investments in irrigation, post-harvest infrastructure, and rural credit further strengthened the agricultural sector, positioning Indian farmers to compete in global markets.
The MSME sector, often called the backbone of the Indian economy, was supported through expanded credit guarantees, technology upgrades, and assistance for export-oriented businesses. Traditional industries like textiles and toys received special attention, with policies designed to help them grow and compete internationally. MSMEs played a crucial role in reducing import dependence and boosting exports, thanks to their adaptability and capacity for innovation. Investments, both public and private, formed the third growth engine, with a strong focus on infrastructure, technology, and industrial capacity. The budget prioritised human capital development, digital connectivity, and renewable energy projects, all aimed at reducing production costs and enhancing the global competitiveness of Indian businesses. This wave of investment created a ripple effect, directly supporting the fourth engine—exports.
MSMEs played a crucial role in reducing import dependence and boosting exports, thanks to their adaptability and capacity for innovation.
Exports were at the heart of India’s external sector strategy. Initiatives like the Export Promotion Mission and BharatTradeNet aimed to integrate Indian businesses more effectively into global supply chains. The focus was on building resilient supply networks, creating sector-specific export hubs, and using digital platforms to expand market reach. The combined efforts in agriculture, MSMEs, and investments ensured that India could reduce its reliance on imports, boost domestic production, and increase exports. This comprehensive approach not only improved the trade balance but also created a sustainable path for reducing CAD and strengthening economic resilience.
Finally, by addressing structural challenges, strengthening domestic industries, and promoting exports, Budget 2025 set the stage for a more balanced current account and sustained growth. The coordinated efforts across agriculture, MSMEs, investments, and exports highlighted a forward-looking vision—one that prepares India to face global challenges with confidence, enhance its economic resilience, and emerge as a major player on the world stage.
Soumya Bhowmick is a Fellow at the Observer Research Foundation
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