Budget shield in a new export order

The budget has brought labour-intensive export performance to the fore through customs duty rationalisation, credit support to small enterprise, a mission to negotiate the tariff and non-tariff barriers, and a review of non-financial regulation that stunts enterprises. Exports are vital to achieving 8% aspirational growth, and the policy interventions in the budget coincide with US efforts to set its trade balance in order. India is not among the first list of the US' trading partners to face tariffs, but it has to prepare for the eventuality. Small exporters also need hand-holding over new sustainability requirements the EU has drawn up. Deleveraged corporate balance sheets allow for greater credit pass-through to MSMEs.

The interventions announced in the budget, however, could be overwhelmed by external developments. Donald Trump may insist on deeper import tariff roll-backs for India to secure a favourable position in manufacturing exports. His immigration policies could affect India's software export earnings. The EU's effort to stop carbon leakage will have an undue influence on textile, leather and toys exports. India's trade promotion, on its part, must be sensitive to the likelihood of exporting scarce resources such as water through industrialisation. The MSME export sector is up against a challenging external environment even as internal conditions improve slowly.

The emphasis in the budget on small exporters addresses some of the imbalance in capital-intensive manufacturing exports subsidised by production incentives. This can deliver outsized dividends if India succeeds in capitalising on the changing dynamics of international trade. Alongside a stimulus for domestic consumption, the budget contains a fair bit for manufacturing for industry to recover from a slump.