Previous shutdowns, including the 35-day closure in 2018-19, saw nearly 800,000 workers temporarily dismissed, causing operational delays and economic disruption.

Washington: The United States government entered a shutdown on October 1, after Congress failed to agree on funding for federal operations.

Thousands of employees have been furloughed, essential services are strained, and the impasse has raised concerns globally, including in India, where economic and trade ties with the US are significant.

What exactly is a government shutdown, and how can it impact India? The Free Press Journal explains:

What is a government shutdown?

A government shutdown occurs when Congress does not approve the annual appropriations bills necessary to fund federal agencies. These bills must be passed and signed by the president before the fiscal deadline, usually October 1. When funding is not authorised, non-essential government operations must pause. Essential services, such as border protection, law enforcement, air-traffic control, and active military operations continue, although staff may be unpaid temporarily under the Antideficiency Act. Programs funded through mandatory appropriations, such as Social Security and Medicare, also continue.

During a shutdown, federal employees classified as non-essential are furloughed, and contractors may lose work. Previous shutdowns, including the 35-day closure in 2018-19, saw nearly 800,000 workers temporarily dismissed, causing operational delays and economic disruption.

Why does the US government shut down?

The 2025 shutdown emerged from a dispute between Republican and Democratic lawmakers. Republicans, controlling both chambers, sought a “clean” short-term funding extension, while Democrats demanded extensions of health insurance subsidies under the Affordable Care Act and a reversal of Medicaid cuts introduced under the Trump administration’s Big, Beautiful Bill.

The deadlock in the Senate, where 60 votes are required to pass a funding bill, prevented compromise. President Donald Trump has suggested the shutdown could be used to permanently reduce the federal workforce rather than merely furlough staff. Both parties blame each other for the standoff, with Republicans arguing that Democratic policy demands caused the closure, while Democrats insist they are protecting public health benefits (India Today, 5 October 2025).

Here's how it can affect India

The shutdown’s impact extends beyond US borders, even affecting India, particularly amid the ongoing trade tensions between the two nations. American tariffs and trade restrictions have already strained Indian exports of steel, aluminium, pharmaceuticals, textiles, engineering goods, and gems and jewellery. A prolonged shutdown threatens to further weaken US demand, potentially reducing orders and delaying payments.

Indian financial markets are sensitive to such global uncertainty, with the rupee already slipping and foreign portfolio investors withdrawing funds.

Indian IT services, reliant on US corporations, may face deferred projects, while aviation, tourism, and startups dependent on US venture capital could see slower funding and operational delays. Analysts warn that each percentage point dip in US growth could trim billions from India’s merchandise exports. Policymakers in Delhi and Mumbai are reportedly monitoring the situation closely, considering interventions to stabilise currency, liquidity, and investor confidence.

While a short-term shutdown may only create minor disruptions, a prolonged or recurring standoff could deepen financial stress and impact trade, exports, and the broader Indian economy.