Prime Minister Narendra Modi’s strategy to shield India’s economy from the fallout of renewed US trade pressure became clearer on Sunday, as the Union Budget 2026–27 outlined a cautious but targeted response to global uncertainty, particularly the tariff threats posed by US President Donald Trump.

The budget places strong emphasis on supporting exporters hit by steep US tariffs, while also backing strategic sectors such as rare earths, semiconductors, pharmaceuticals, and critical minerals. It proposes fresh outlays on infrastructure and an 18% increase in defence spending, reinforcing India’s security posture amid ongoing challenges from China and Pakistan. At the same time, the government has largely adhered to its fiscal consolidation path, keeping overall expenditure and debt targets under control.

Unlike last year’s budget, which featured broad-based tax cuts to boost consumption, this year’s plan avoids major populist measures. Instead, it reflects what analysts describe as a “holding operation” for the economy, aimed at insulating India from global headwinds while preserving fiscal discipline. The approach comes as the ruling BJP prepares for politically sensitive state elections, limiting room for expansive spending.

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Finance Minister Nirmala Sitharaman, in her 90-minute budget speech to Parliament, warned of an “external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted.” While she did not name the United States, the proposals were widely seen as a response to the 50% tariff imposed since August on certain Indian exports, partly linked to India’s purchase of Russian oil. These duties have hurt labour-intensive sectors such as textiles and furniture.

To counter these pressures, the government is doubling down on self-reliance and diversification of trade ties. Measures include incentives for domestic manufacturing in strategic sectors and initiatives to develop rare earth mining and processing, particularly in mineral-rich eastern and southern states. Industry leaders said the steps were essential to building a resilient industrial ecosystem in an era of geopolitical volatility.

Alongside self-reliance, India is also seeking to reduce dependence on the US market by strengthening alternative trade partnerships. The recently concluded free trade agreement with the European Union, along with earlier pacts with the UK and New Zealand, is expected to provide exporters some relief from US tariffs.

Despite these moves, questions remain about growth and job creation. While the government projects economic growth of 6.8% to 7.2% in the coming fiscal year, market estimates are lower, and opposition parties have criticised the budget for not adequately addressing youth unemployment and declining household savings. For now, however, the Modi government appears focused on steering the economy through an uncertain global phase without straying from its fiscal targets.

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