The Union budget adopted a manufacturing-led strategy to support exports and strengthen India’s integration into global supply chains, at a time when geopolitical tensions and trade disruptions are reshaping sourcing decisions worldwide.
Presenting the budget, finance minister Nirmala Sitharaman said the government’s focus would be on lowering input costs, easing compliance and improving logistics and trade facilitation, rather than relying solely on incentives, to position India as a global manufacturing and sourcing destination.
A key plank of the export push is targeted customs relief for labour-intensive sectors. The budget raised the limit for duty-free imports of specified inputs used for processing seafood exports from 1% to 3% of the free-on-board (FOB) value of the previous year’s export turnover, a move aimed at easing cost pressures in the marine sector.
Mint had reported on 31 January that budget 2026 was expected to mark a reset in the government’s manufacturing support strategy, shifting from incentives and protection towards removing everyday frictions that limit firms’ ability to scale and compete globally.
Manufacturing is a central pillar of India’s economic growth, contributing 16-17% of GDP and employing over 27 million workers.
Duty-free import benefits for the leather and footwear industry were also expanded to include shoe uppers, in addition to finished leather and synthetic footwear, providing greater flexibility in sourcing inputs and supporting domestic value addition. The government further extended the export obligation period under the Advance Authorisation Scheme from six months to one year for exporters of textile garments, leather apparel and leather or synthetic footwear, addressing long-standing concerns around production timelines, working capital stress and compliance risks.
Signalling a parallel push to strengthen capital goods manufacturing, the finance minister announced that a scheme for enhancement of construction and infrastructure equipment (CIE) will be introduced to support domestic production of high-value and technologically advanced equipment.
“This can range from lifts in multi-storey apartments and firefighting equipment to tunnel-boring machines used in metro rail and high-altitude road projects,” Sitharaman said. The announcement aligns with the government’s emphasis on self-reliance in capital goods amid changing geopolitical conditions and supply chain vulnerabilities. The government had recently updated the standards for lifts, as reported by Mint on 3 December, 2025.
For smaller exporters, MSMEs and e-commerce sellers, the removal of the ₹10 lakh per-consignment cap on courier exports is expected to improve access to overseas markets by enabling higher-value shipments through courier mode, without the need to shift to more complex cargo channels.
Beyond export-linked measures, the Budget uses customs policy as a tool to strengthen domestic manufacturing capabilities in strategic sectors.
Basic customs duty has been exempted on raw materials imported for manufacturing aircraft parts used in maintenance, repair and overhaul (MRO) activities by defence sector units, supporting domestic aviation and defence MRO capacity. In consumer electronics, the government announced zero basic customs duty on specified parts used in the manufacture of microwave ovens, signalling a push towards deeper domestic value addition.
Clean energy and critical materials also feature prominently in the tariff changes. The Budget reduced customs duty on sodium antimonate used in solar glass from 7.5% to nil, and exempted capital goods required for manufacturing lithium-ion cells for battery energy storage systems, while customs duty on monazite was cut to zero. In health care, basic customs duty was exempted on 17 additional drugs and medicines, including those used for rare diseases, as well as on key diagnostic components such as X-ray tubes and flat-panel detectors.
“The Budget simplifies the customs tariffs by rationalizing exemptions and embedding effective rates, while extending targeted duty relief to strengthen domestic manufacturing and exports as well as allowing supplies from a SEZ to domestic tariff area at concessional rate. Crucially, customs is transitioning to a trust-based, fully digital framework along with AI-enabled scanning, faster clearances and predictable rulings marking a significant step forward in ease of doing business. It also gives a boost to cross-border e-commerce exports by removing procedural and value-related constraints, enabling wider global market access for Indian MSMEs and start-ups,” said Bipin Sapra, partner and national indirect tax policy leader, EY India.
According to an analysis by the Global Trade Research Initiative (GTRI), the Budget marks a shift towards targeted tariff exemptions rather than broad-based duty cuts, with emphasis on manufacturing, clean energy, defence, health care and exports. “Rather than headline tariff cuts, the Budget focuses on targeted exemptions and process reforms aimed at reducing input costs and improving certainty for long-gestation and capital-intensive projects,” said Ajay Srivastava, co-founder of GTRI.
At the same time, the Budget introduced selective tariff increases, including a higher basic customs duty on potassium hydroxide from nil to 7.5%, and revised duties on umbrellas and umbrella parts, reflecting a calibrated approach that combines input liberalization with limited protection for certain consumer goods. While the tariff measures are country-neutral, GTRI noted that they align closely with global strengths in aerospace, nuclear technology, clean energy equipment, electronics and medical devices, potentially improving market access for foreign suppliers in capital-intensive segments of the Indian market.
Highlighting the broader reform context, Sitharaman said, “Our government has undertaken comprehensive economic reforms towards creating employment, boosting productivity and accelerating growth. Over 350 reforms, including GST simplification, notification of Labour Codes, and rationalisation of mandatory Quality Control Orders, have been rolled out.” She added that the Centre is working with state governments to further deregulate and reduce compliance burdens.
The government has withdrawn 50 products from mandatory QCO requirements to ease compliance burdens, encourage manufacturing activity, and allow smoother imports of raw materials without procedural obstacles.
“The package of measures reflects the government’s broader attempt to align customs policy with manufacturing, export promotion, and public welfare objectives, while easing cost pressures across sectors facing global competition and domestic capacity constraints,” said Abhash Kumar, trade economist and assistant professor at Delhi University.
Industry executives said the construction equipment announcement could provide a significant boost to domestic capital goods manufacturing. Deepak Shetty, managing director and CEO of JCB India, said the focus on high-value equipment such as tunnel-boring machines, earthmoving equipment and crane systems is expected to drive demand for advanced locally produced machinery, spur innovation and strengthen India’s position as a competitive manufacturing hub in the global construction ecosystem.
Customs duties are important as they shape manufacturing by influencing input costs, competitiveness and investment decisions. Lower duties on raw materials, components and capital goods reduce production costs, support value addition and improve export competitiveness, while selective duties on finished goods can give domestic manufacturers room to scale up.
