Budget boost for India’s middle class #IndiaFinance

Good morning. US President Donald Trump knocked Indian finance minister Nirmala Sitharaman off the headlines this week with his announcement about higher tariffs on Canada, Mexico and China (he has since delayed them). India is not on the list for now, thanks perhaps to some proactive Harley-Davidson diplomacy. That’s later in this newsletter, but first, what does the budget tell us about the government’s plans for the Indian economy?

Buy buy blues?

Saturday’s budget announcement clearly signalled the government’s intent to help jump start consumption growth in the Indian economy. Finance minister Nirmala Sitharaman pulled a bold move in making income up to Rs1.2mn ($13,800) a year tax free, up from Rs700,000 currently. She also recast the tax brackets, which will help people earning up to Rs2.4mn a year pay lower taxes. Her generosity for the Indian middle class did not end there. She made ownership of a second home easier and slashed duties on cancer drugs, jewellery, furniture and other consumer goods.

The income tax proposal by itself leaves the government poorer by Rs1tn. This means the government has less ambitious plans for capital expenditure. For 2025-26, public capex outlay is Rs11.21tn, which is only 0.9 per cent over the previous year. The biggest beneficiary of projects announced in the budget is the state of Bihar, where elections are scheduled to be held in November this year. Using the national budget as a means to curry favour with voters in state-level elections is a terrible practice because it gives the ruling party an unfair advantage, but it is one that no government has shown the strength to shake off.

The other, smaller, signals that the government sent with the budget were its support for start-ups, which now have five more years to claim relevant tax exemptions on profits, and health insurance cover for gig workers. These are clear signs that New Delhi is hoping the private sector will take the lead in generating a larger number of jobs.

Overall, whether this was a “good” budget or not depends on who you are speaking to. In India we have a tendency to look at this exercise as a panacea for all ills. It is impossible for any government to cut taxes, invest in large infrastructure projects and increase spending on public welfare schemes at the same time while maintaining fiscal discipline.

My view is that Sitharaman has tried to do what is needed for the economy at this point. She has put money in the hands of the people and is hoping higher consumption will lead to higher private capital expenditure and employment growth. It’s a gamble well worth taking. The country’s next big economic question is whether the central bank will help the government by cutting interest rates on Friday.

Have more questions about the budget? Send them to us at [email protected].

Recommended stories

1. Trump’s now-delayed tariffs shook currency and stock markets yesterday. Our editorial board writes that the levies will harm America’s own economy and diplomatic power. Also, check out this explainer on the impact of the trade war.

2. India is set for a blockbuster IPO year, with companies hoping to raise more than $23bn in 2025.

3. Read this FT exclusive on how companies from Boeing to Amazon are cutting deals with Elon Musk and his businesses. No prizes for guessing why.

4. The New York Stock Exchange wants to work 22 hours a day, pushing investment professionals to engage in complex debates, such as when does the day start?

5. Diageo is under pressure from investors as demand for alcohol drops. Another story about alcohol that caught my eye was this fascinating account — confessions of the world’s most elite sober coach.

Hog tied

This weekend, Trump announced tariffs on Canada, Mexico and China. India was not in this initial list, but that’s no guarantee we won’t be in the next. How would we deal with it then? A curious inclusion in Sitharaman’s budget sheds some light: a cut in customs duty for some motorcycles.

It turns out that the import levy reduction — from 50 to 30 per cent for motorbikes with engine capacity of 1600cc or above — helps further open the market for Harley-Davidson in India. For years now, Trump has been going on about India’s high duty on the American motorcycles. In his first term, he often talked about his phone call with Prime Minister Narendra Modi which led to a 50 per cent slash in duty on Harleys. Before that, these bikes attracted 100 per cent tariffs.

It isn’t really clear why the issue of Harley-Davidsons in India is so important to Trump. It is not a product for the mass market, and while a lower duty will increase sales numbers of some larger models of the brand, it is not going to be a major game-changer for the company or India-US trade. Still, it seems like one of those things that Trump is fixated on and so far India has been using it strategically.

Trump has often called India out as a high tariff country. The lower duty on Harley-Davidson may buy us some time, but it certainly does not neutralise the threat. According to media reports, Trump and Modi are expected to meet later this month, and potential tariffs will certainly be an important point of discussion. We’ll see whether the two friends will eventually ride off into the sunset — perhaps on a Harley-Davidson.

Go figure

The launch of DeepSeek shook OpenAI, whose chief executive Sam Altman is now promising to deliver better models. The Chinese AI upstart, which triggered a market sell-off in technology stocks, is now on top of the charts, becoming the most downloaded app last week.

(source: seo.ai and appfigures.com)

My mantra

“The productivity challenge is to make sure that we’re all working towards the same coherent goal and objective. There is so much opportunity that it’s easy to get distracted. Setting out those objectives is extremely important, especially in India because there is so much ambition and drive, and if you don’t channel that right you have the risk of going all over the place.”

— Pieter Elbers, Chief Executive, Indigo

Each week, we invite a top Indian business leader to tell us their mantra for work and life. Want to know what your boss is thinking? Nominate them by replying to [email protected].

Quick question

Do you think Trump will come for India in the next round of tariffs? Take part in our poll here.

Buzzer round

On Friday we asked: What is Nato trying to prevent by deploying drones, submarines, ships and aircraft in the Baltic Sea?

The answer is . . . sabotage attempts on undersea cables. Nato’s deployment is the latest in a series of actions to bolster the eastern flank of the military alliance following Russia’s full-scale invasion of Ukraine in 2022, and subsequent acts of sabotage against multiple countries.

Sritanu Chatterjee was the first to send us the right answer. Congratulations!

Thank you for reading. India Business Briefing is edited by Tee Zhuo. Please send feedback, suggestions (and gossip) to [email protected].