Page 132 - CW E-Magazine (11-2-2025)

Point of View

FM presents her eighth Union Budget, but news

from Washington moves markets and sentiments

India’s annual budget is unique in the kind of attention it garners – from the media, industrialists and, increasingly, the common man.
While it is seen elsewhere in the world as largely an accounting statement for year gone by, with some indication of what it is to come,
the ritual in India has all makings of a media circus. The Finance Minister’s (FM) statements are pored over in agonising detail, and every
twitch of capital market indices are attributed to one or more parts of the budget speech. A more nuanced analysis usually follows a few
days later, when the details (in which the proverbial devil resides) are available.

This year was different. Not so much in terms of what the FM said or left unsaid or the attention it got, but in terms of what moved the
needle. Aside of the immediate reaction in the stock market indices (which was next to nothing), what seemed to matter in the aftermath
was the news emanating from Washington, not New Delhi.

Boost to personal consumption?
The most widely welcomed feature of the budget this year was the raising of the income tax ceiling of the salaried class to Rs. 12-
lakhs per annum (from Rs. 7-lakhs earlier). The FM in a bit of drama kept this for the end of her budget speech, and received enthusiastic
support from party benches, and even the opposition could do little but sit still till the applause died down. The stated aim of the move is
increase discretionary spends, but the jury is out on whether this will actually happen.

While there is no doubt that the relief is much larger than anticipated, external dynamics could be a spoiler. Today, there is a great deal
of uncertainty in the world. The wrecking ball President Trump has taken to trade relationships, including with countries deemed hitherto
friendly (Canada), intimately linked to US manufacturing (Mexico) or minor players (most economies of South and Central America), has
spooked markets across the world. While the tariff measures on Mexico and Canada have been put in abeyance for a month (giving all
parties some wiggle room in ensuing negotiations), that has not been the case with China, which has also retaliated. The tariff, trade
barriers, export restrictions and legal cases on a few high profile US companies seem a warning shot to the US, and how these signals
are read in Washington is hard to guess. A further escalation can by no means be ruled out, and that is not just bad news for the two
countries involved.

There are some pundits who claim an US-China trade spat can mean more export opportunities for India. While this may indeed be
the case, there are several downsides to a protracted trade war, even one in which India is not directly involved.

In FY23, India’s exports to the US tallied to $78-bn, compared to imports of $50-bn, leaving a trade deficit of $28-bn – a red flag to
the new US administration. Main items exported from India to the US were diamonds and jewellery ($13.6-bn, with a sizeable import
component), medical appliances & accessories ($7.4-bn), refined petroleum products ($4.9-bn) and drugs & pharmaceuticals ($1.68-bn).
Other important sectors, with exports between $500-mn and $1-bn, included chemicals ($600-mn), textiles & apparel ($750-mn), and
automotive components ($800-mn). While these exports may go up a tad, the risk of India also becoming a target for tariff and/or
non-tariff barriers is real and can be significant (for us).

Take exports of petroleum products. Much of the exports are based on imported crude oil, and a significant quantity of this comes
from Russia at specially discounted prices. These import volumes have fallen from the peak levels in the wake of the Russia-Ukraine
conflict, but are still sizeable, and it is possible additional pressure may be applied on Indian refiners to further reduce Russian purchases.
There may well be a move, prodded by our government, to purchase more from the US to partially correct the skewed trade balance and
assuage the new US administration, in addition to more traditional sources in the Middle East. All this will mean higher oil import bill for
refiners, which could eat into their refining margins.

Importantly, the uncertainties prevailing are dampening the ‘animal spirits’ in global financial markets and leading to a flight of capital
to safe havens. At the top of this heap is the US. This is evident in the strengthening of the US dollar against most other currencies, and
the cashing out by portfolio investors of positions in emerging markets. The weakening of the Rupee will have inflationary pressures
considering a large portion of India’s imports are Dollar denominated. Furthermore, a slowdown in overall GDP growth seems very much
in the realm of possibilities, and the sequential decline seen in the last two quarters seem to bear this out.

132 Chemical Weekly February 11, 2025 Chemical Weekly February 11, 2025 133

Contents Index to Advertisers Index to Products Advertised