12 February 2025 : Indian Express Editorial Analysis

1. Deal Making with Trump

(Source – Indian Express, Section – The Editorial Page – Page No. – 12)

Analysis of the news:

A Paradoxical Moment in India-US Diplomacy

• The upcoming summit between Prime Minister Narendra Modi and US President Donald Trump marks a paradoxical moment in diplomatic history.
• While India has engaged with Trump before, his second-term policies represent both continuity and discontinuity.
• The familiarity of past interactions is overshadowed by Trump’s push for radical change in America’s domestic and foreign policies.
• This creates a unique challenge for Indian diplomacy, requiring both adaptability and strategic foresight.

Navigating Diplomatic Complexity

• India’s swift diplomatic efforts have set the stage for Modi’s visit within the first month of Trump’s new administration.
• Over the past few weeks, multiple high-level conversations including between Modi and Trump, as well as key ministers and their US counterparts have facilitated this engagement.
• Despite this progress, External Affairs Minister S. Jaishankar has acknowledged that Trump’s approach to international relations remains unpredictable, posing an “out of syllabus” challenge for India’s foreign policy.

The Evolution of India-US Relations

• For the past 25 years, India and the US have steadily strengthened their relationship, overcoming major disagreements on issues like Pakistan and nuclear non-proliferation.
• While differences remain inevitable between two large nations, their ability to prevent disputes from derailing cooperation has been a significant achievement.
• However, Trump’s approach to governance, which differs from traditional American policies, introduces new uncertainties that India must navigate carefully.

The Impact of ‘America First’ on Diplomacy

• Trump’s second-term agenda is deeply rooted in the “America First” ideology, which seeks to reduce government intervention, revive domestic manufacturing, and challenge liberal political influence.
• His administration’s foreign policy moves away from globalism, focusing instead on protecting American economic and security interests.
• This shift adds a layer of complexity to India’s diplomatic engagement, as it must align its interests with a government that prioritizes transactional relationships and aggressive negotiations.

Transactional Diplomacy: A Challenge or Opportunity?

• Trump’s preference for deal-making over ideological rhetoric could work in India’s favor.
• Modi, known for his pragmatic approach to international relations, has similarly moved away from outdated diplomatic ideologies.
• This alignment in negotiation styles presents an opportunity for India to secure favorable agreements, provided it can navigate Trump’s high expectations and evolving demands.

Key Areas of Engagement

Modi’s pre-summit statement outlined five major areas for collaboration: trade, defense, energy, technology, and supply chain resilience. Each of these sectors offers significant room for negotiation:

• Trade: With a $45 billion trade deficit, Trump is keen on reducing barriers to US exports. India has signaled a willingness to lower tariffs and expand market access, but Trump’s increasing demands could make negotiations challenging.
• Energy: As a major energy importer, India could enhance cooperation with the US, especially in nuclear power, where Trump is investing heavily to boost AI-driven industries.
• Defense: Indo-US defense ties have grown over the past two decades, and Trump aims to expand India’s purchases of US military equipment. India, however, seeks better terms on technology transfer and co-production.
• Technology: India and the US must strengthen cooperation in emerging technologies, particularly as AI and advanced sectors become central to global competition. While Washington is wary of China’s technological rise, India must ensure it is not restricted by potential US controls.
• Supply Chain Resilience: The COVID-19 pandemic exposed the risks of over-reliance on China for manufacturing. Strengthening Indo-US collaboration in this area could lead to more resilient global supply networks.

Lessons from Trump’s Governance Style

• Beyond economic and strategic negotiations, Modi’s visit provides an opportunity to observe Trump’s governance model.
• Trump’s efforts to dismantle the bureaucratic state and reduce government control align with Modi’s 2014 vision of “minimum government, maximum governance.”
• Learning from Trump’s strategies could inform India’s own administrative reforms.

Conclusion:

• While diplomacy is crucial, India’s ability to engage with a rapidly changing global order depends equally on internal reforms.
• Modi’s government must focus on strengthening India’s economic and technological base to navigate the challenges posed by Trump’s policies.
• Ultimately, the success of this summit will depend on India’s ability to balance diplomatic pragmatism with its long-term strategic goals.

2. Trust in the Taxpayer

(Source – Indian Express, Section – The Editorial Page – Page No. – 12)

Analysis of the news:

Boosting Demand Through Tax Relief

• As India aims for accelerated economic growth, reviving demand is a central focus.
• To stimulate private investment and urban consumption, Finance Minister Nirmala Sitharaman announced a major income tax relief, exempting individuals earning up to ₹12 lakh from taxation.
• This move not only reduces the tax burden on a significant section of taxpayers but also lowers tax rates for higher-income groups.
• The broader economic implications of this shift—both for fiscal health and consumption patterns—will be closely watched.

Impact on the Middle Class and Consumption

• Tax data suggests that the median gross total income for individuals filing returns ranges between ₹5 and ₹5.5 lakh.
• However, since only 6.68% of the population filed income tax returns in FY 2023-24, the taxpaying demographic does not fully represent India’s income distribution.
• The exemption of incomes below ₹12 lakh benefits 83.52% of individual taxpayers, while higher earners also see significant reductions.
• For instance, an individual earning ₹25 lakh annually could see their tax liability drop by more than a third.
• The key question remains: Will this relief translate into higher consumption? Household spending data indicates that urban median monthly consumption is ₹6,334, while rural spending stands at ₹3,866.
• Increased disposable income could boost spending on goods and services, potentially generating jobs.
• However, past experiences—such as corporate tax cuts that failed to sustain investment growth—raise doubts about whether personal tax reductions will have a lasting economic impact.

Fiscal Cost and Revenue Considerations

• The tax cut is estimated to cost the exchequer ₹1 lakh crore. The government is betting on higher demand to drive economic activity, which, in turn, could replenish tax revenues over time.
• However, the effectiveness of this “multiplier” effect depends on how additional income is distributed and spent.
• Some economists argue that reducing indirect taxes, rather than direct income taxes, might have been a more effective strategy for stimulating consumption, particularly among lower-income groups.

Reforming Corporate Taxation and Compliance

• Beyond personal tax relief, the government is also focusing on simplifying corporate taxation to enhance the ease of doing business.
• A key challenge in direct taxation has been transfer pricing—the process of ensuring that transactions between related business entities are conducted at fair market value.
• The introduction of a “block audit” for a fixed two-year period aims to streamline assessments, reducing both administrative burdens and taxpayer disputes.
• Additionally, the government’s rationalization of TDS thresholds and revisions to capital gains taxation demonstrate a broader effort to improve compliance and reduce complexities in the tax system.

Anticipating a New Income Tax Act

• A comprehensive reform of the Income Tax Act is expected soon, with the Finance Minister suggesting that the new version will be significantly shorter and devoid of penal provisions.
• This restructuring could reinforce trust in the tax system and encourage voluntary compliance.
• The combination of tax cuts and simplified regulations raises the ongoing debate: Can tax policy be effectively used to drive spending and economic growth?
• While tax relief provides immediate financial relief, its long-term impact on investment, consumption, and fiscal stability remains uncertain.

Check Indian Express editorial… 11 February 2025 : Indian Express Editorial Analysis