Our weekly newsletter, analysing global stories from an Indian lens
In Focus
Trump and Musk Target USAID in America-First Overhaul
The Trump administration is executing a sweeping overhaul of USAID, aligning its foreign assistance with an "America First" agenda. This reorganization is significantly influenced by Elon Musk, DOGE chief and Trump ally, who has characterized USAID as a "viper's nest of radical left Marxists" and advocated for its defunding to curb government overspending and inflation. Secretary of State Marco Rubio, now serving as acting USAID administrator, has proposed a restructuring to more closely align USAID with core U.S. interests.
A rollback or restructuring of USAID is unlikely to directly and significantly impact India. New Delhi has long maintained a degree of skepticism towards conditional aid, even as it has received over USD 950 million in U.S. assistance in recent years, primarily in health, population, and energy. Some in India have harbored concerns that USAID has supported ideologically motivated programs that help the US build long-term social and political leverage potentially weaponizable against India.
However, critics caution that a complete withdrawal of U.S. foreign assistance risks creating a vacuum, allowing China to expand its influence in the Global South. Importantly, India and the U.S. have successfully collaborated through initiatives like the USAID-funded South Asia Regional Energy Partnership to enhance energy efficiency and cross-border energy trade in a region where both nations are strategically engaged and contending with China. India is, therefore, likely to support a USAID review, restructuring and cooptation–a leaner, transparent agency within the State Department focused on core national interests over ‘with strings attached’ ideologically driven assistance that hurts host governments.
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Navigating Trump's Tariff Threats: India's Strategic Response
President Trump's protectionist stance, despite a temporary reprieve for Canada and Mexico, introduces significant uncertainty for global trade and investment. While India has so far largely avoided direct tariff measures, Trump's focus on reciprocal trade and his past criticism of India as a "tariff king" suggest a potential for future action.
The U.S. remains India's largest export market, reaching USD 77.5 billion in 2023-24. However, significant trade imbalance, with Indian imports from the U.S. dropping 17% to USD 42.2 billion, provides a rationale for Trump to pursue tariff adjustments.
With Prime Minister Modi's upcoming visit to Washington, India is proactively recalibrating its trade policy. This includes tariff rationalization on select imports like motorcycles, and potential concessions such as increased purchases of U.S. military equipment and crude oil. Simultaneously, experts suggest that the U.S.-China trade tensions could create opportunities for India to expand its exports in sectors like electronics and IT, provided it can address its own trade barriers. India's 2025 budget reflects this balancing act, signaling a commitment to both domestic growth and global competitiveness.
India’s 2025-26 Budget: Diplomacy, Defense, and Domestic Growth
The 2025-26 Union Budget saw a 15.5% increase in allocation for the Ministry of External Affairs. A significant portion is directed toward large infrastructure projects abroad, especially in India’s immediate neighbourhood where China’s presence has grown significantly. Meanwhile, a 9.5% rise in defense spending prioritizes domestic procurement of advanced weaponry and systems, strengthening India’s self-reliance in military capabilities. Further localization efforts extend to manufacturing, electric vehicles (EVs), semiconductors, and electronics, positioning India to capitalize on shifting global supply chains amid US-China tariff tensions. The government is also refining its foreign investment framework, making bilateral investment treaties more investor-friendly and raising the FDI cap in the insurance sector from 74% to 100%. These measures enhance India’s role in global trade negotiations and economic diplomacy, fostering a more competitive and investment-friendly environment.
Germany’s Election: What It Means for India
Germany's upcoming election presents both challenges and opportunities for India, particularly concerning trade and geopolitical alignment. While a CDU/CSU coalition with Friedrich Merz as Chancellor is likely, potential policy shifts could influence India-Germany relations.
Germany's support for the stalled EU-India Free Trade Agreement (FTA) remains crucial . While Chancellor Scholz has been optimistic about its future success, a more inward-looking German government or one focused on trade disputes with the U.S. could deprioritize the FTA, hindering Indian exports. However, if US policies adversely target EU countries through high tariffs, India is likely to emerge as a key trading partner for Germany.
Germany's commitment to diversifying supply chains away from China under the EU's Global Gateway initiative could benefit Indian manufacturers.Â
Both India and Germany have shown strong interest in increasing defense ties. A CDU-led government is expected to increase defense spending to strengthen NATO and EU strategic autonomy. These shifts may increase defence co-operation between the two. The extent to which these shifts occur will depend on the composition of Germany's next government and its approach to balancing economic and security interests.
