Budget may double down against external threats

Steps to boost capital inflows, exports likely

- PRASANTA SAHU

FINANCE MINISTER NIRMALA SITHARAMAN may seek to reinforce the external firewalls of the Indian economy and financial system by taking concerted steps in the Union Budget for FY27 to arrest capital outflows and boost forex inflows into the current account.

The budgetary measures would complement the ongoing aggressive import tariff liberalisation through free trade agreements (FTAs), with sweeping Customs duty cuts under the most favoured nation (MFN) route.

Global headwinds, caused primarily by the whimsical policies of the Trump administration—including a hefty 50% tariff on Indian goods in the US markets—have changed the context of the upcoming Budget significantly, sources privy to the government's thinking on the matter said.

The trend of capital flight, which now looks persistent, is proving to be both the cause and effect of the rupee's fall against the dollar, they added.

THOUGH THERE WILL be no change in the stated policy to allow the rupee's value to be market-determined, policymakers have taken note of the rising costs of imported machinery and intermediates caused by the weaker local currency, and its dampening impact on the investment climate. "What is causing concern is that FDI and portfolio inflows have slowed at a time when domestic savings aren't very robust. This can hit capital formation," said a source.