On 1 February 2025, India's Union Budget unveiled tax and regulatory reforms with a strong focus on areas relevant to the international community, aiming to propel the country to a $30 trillion economy by 2047. Two months in, we consider the reception to India's plans to boost key sectors of its economy and navigate international relations amidst global economic pressures.
India's 2025 – 2026 budget emphasised structural reforms, digitalisation and investment-friendly policies. It included increases in spending across critical sectors such as infrastructure, nuclear energy, artificial intelligence and healthcare while adapting to global political developments.
The reception from market analysts to the budget has been broadly positive. EY India highlights its particular focus on boosting consumption through expanded tax relief for low and middle income taxpayers, as well as support for smaller businesses through the doubling of available credit guarantees. There is also a clear sectoral focus on manufacturing through the National Manufacturing Mission, as well as prioritisation of R&D and innovation to drive growth.
Overall, the budget and the following steps taken by India's central bank demonstrate India's continued drive to improve the ease of doing business as it targets real GDP growth between 6.3 – 6.8% this financial year. The plans and direction of travel have led to commentators such as Bill Gates acknowledging that the pace of innovation in India has better than many had expected, signalling optimism for the country's continued development. Underpinning this optimism are some key strategic and significant policy shifts explored in more detail below.
Interest and tax reforms
In February 2025, the Reserve Bank of India cut interest rates for the first time in nearly 5 years. The move from 6.5% to 6.25% complements the Union Budget’s $12bn tax cut for the middle class and decision to retain the lowered corporate tax rates of 22% (down from 30% prior to September 2019). These moves by the government and central bank demonstrate a clear drive to encourage consumption following FY25's growth of 6.7% - which represented a four-year low.
The government has also introduced proposals to simplify the corporate merger process in India, as well as to implement new rules for transfer pricing. Its aim is to reduce compliance burdens and litigation, and therefore drive investment. Adjustments to customs duties and GST rules also aim to boost domestic production and simplify trade.
Tariffs and Trump
India's highly protectionist policies have attracted particular attention from President Trump in the US, who branded India a “tariff king” for having the highest trade-weighted import duties tariffs. India's average tariffs sit at 12%, compared to the previous average US tariff of 3.3%. Despite an attempt to avoid getting swept up in a US trade war through pre-emptive tariff cuts on products such as Bourbon whiskey, motorcycles and some other US products, Trump announced a 26% tax on all imports to the US from India on 2nd April 2025. This was amongst the highest tariffs imposed by the US on major economies, barring China.
India has typically turned to economic liberalisation in times of distress (such as in 1991), and trade talks with the US are underway. However, the jury is out on whether India will seek at this particular crossroad to double down on its protectionism to protect its domestic industries or embrace a more open approach to international trade. The latter approach, though risking domestic manufacturing that has otherwise been a focus of the latest budget, could impact not just the US but the free trade deals currently being negotiated by India with the UK, New Zealand and the EU.
If India is willing to lower tariffs in response to the US' tariffs to achieve reciprocity, it would create space for businesses to build long-term links with US companies that could drive a new wave of growth. The exceptionally high tariffs on China, as well as the taxes on neighbouring economies like Bangladesh, creates an opportunity for India to seek to realign global supply lines into the US should it opt for liberalisation. This calculation could spur a marked shift in India's traditional protectionist approach to global trade.
India's attempts to woo favour with the Trump administration can also be seen in the recent decision by telecom giants Reliance Jio and Bharti Aritel to team up with Elon Musk’s SpaceX to launch services via Starlink. Jio was seen as Starlink’s biggest competitor in India’s satellite and broadband market, and so this unison is seen as a signal of attempts by Indian business to leverage Musk's influence to support wider economic interests in India.
Domestic focus on infrastructure and insurance
India continues to invest significantly in infrastructure, with projects such as the Gati Shakti National Master Plan aiming to reduce the country’s logistics costs from 14-16% GDP to 9% and the Smart Cities Mission which aims to develop 100 cities across 28 entailing 8,075 projects. Total infrastructure spending is now expected to be 11.2 trillion rupees this year (£104.21bn).
Another significant plank of India's infrastructure spending relates to energy. India’s long-term energy transition strategy outlines a significant push towards nuclear energy, with an ambitious target of 100 GW nuclear power capacity by 2047. The government has allocated 20,000 crore to develop five indigenously designed and operational Small Modular Reactors by 2033.
The insurance sector is also getting a significant boost, with foreign direct investment limits being increased for the sector from 74% to 100%. This is expected to make India's growing insurance market increasingly more attractive, drawing significant international interest.
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We would like to thank Surya Kumaravel and Sonia Miah for their contribution to this article.
