Budget 2026: Customs Duty Overhaul to Boost Exports and Manufacturing

Introduction to Budget 2026 Customs Reforms

Finance Minister Nirmala Sitharaman, in the Union Budget for 2026-27, announced a comprehensive rationalization of India's customs duty structure. The measures are designed to simplify the tariff system, correct duty inversions, and remove long-standing exemptions on items that are now sufficiently manufactured within the country. This strategic overhaul aims to bolster the 'Make in India' initiative, enhance export competitiveness, and reduce the cost burden on domestic producers by recalibrating import duties across several key sectors.

Core Objectives: Simplification and Support

The primary goal behind the customs duty changes is to create a more transparent and efficient tariff framework. The Finance Minister stated that the government intends to weed out exemptions that are no longer necessary, either because domestic manufacturing capacity has grown or because imports of those items are negligible. By incorporating certain effective duty rates directly into the tariff schedule, the process of determining applicable duties will become simpler for businesses. This move is part of a broader push towards ease of doing business, reducing compliance burdens and creating a more predictable trade environment.

A Targeted Boost for Export-Oriented Sectors

To stimulate exports, the Budget introduced several sector-specific incentives, focusing on industries with high global market potential.

Marine Products: The limit for duty-free imports of specified inputs used for processing seafood for export has been significantly increased. It will be raised from the current 1% to 3% of the Free on Board (FOB) value of the previous year's export turnover. This will lower input costs for seafood processors and make Indian marine exports more competitive.

Leather and Textiles: The leather and footwear industry received a notable boost. The facility of duty-free imports of specified inputs, previously available only for leather or synthetic footwear, has now been extended to the export of shoe uppers. Furthermore, the time period for exporting the final product has been extended from six months to one year for exporters of leather garments, footwear, and other leather products, providing them with greater operational flexibility.

Strengthening Domestic Manufacturing and Strategic Industries

The Budget lays strong emphasis on nurturing domestic manufacturing capabilities in strategic and high-growth areas.

Energy Transition: Aligning with India's clean energy goals, the basic customs duty (BCD) exemption on capital goods for manufacturing lithium-ion cells for batteries has been extended to cover battery energy storage systems (BESS). Additionally, the import of sodium antimonate, a crucial component for manufacturing solar glass, will be exempt from BCD.

Critical Minerals: To build self-reliance in strategically important materials, the government has proposed a BCD exemption on the import of capital goods required for processing critical minerals within India. This is expected to strengthen domestic value chains and reduce dependence on imports.

Nuclear Power: The existing BCD exemption on goods required for nuclear power projects has been extended until 2035. The benefit has also been expanded to cover all nuclear plants, regardless of their capacity, ensuring long-term support for the sector.

Key Customs Duty Adjustments in Budget 2026

Support for Aviation and Electronics

The aviation sector received significant concessions to promote domestic manufacturing and maintenance activities. The Budget proposes to exempt BCD on components and parts needed for the manufacture of civilian, training, and other aircraft. Raw materials imported for manufacturing aircraft parts used in Maintenance, Repair, and Overhaul (MRO) by defence sector units will also be exempt from BCD.

In the consumer electronics space, the government continues its push for deepening local value addition. A BCD exemption has been proposed for specified parts used in the manufacture of microwave ovens, encouraging domestic production within the electronics ecosystem.

Navigating Global Trade Headwinds

These budgetary measures are also a response to the challenging global trade environment, marked by geopolitical tensions and protectionist policies like the Trump-era tariffs. By strengthening domestic manufacturing and reducing reliance on imports for critical inputs, India aims to de-risk its economy from external shocks. The focus on diversifying export markets and products is a strategic pivot to build resilience. The reforms seek to turn global disruptions into an opportunity by making Indian industries more self-sufficient and globally competitive.

Trade Facilitation and Ease of Business

Beyond tariff adjustments, the Budget focuses on streamlining trade processes. Trust-based and technology-driven reforms are being introduced to improve logistics and cargo clearance. These include extending duty deferral periods for Authorized Economic Operators (AEOs), increasing the validity of advance rulings, and moving towards automated, risk-based audits instead of officer-dependent approvals. A single digital window for approvals is expected to be operational by April 2026, further simplifying compliance for importers and exporters.

Conclusion

The customs duty reforms announced in Union Budget 2026-27 represent a calibrated and strategic approach to economic policy. By simultaneously promoting exports, protecting domestic industry, and simplifying the tax structure, the government aims to foster a resilient and competitive manufacturing ecosystem. These measures are expected to lower costs for producers, encourage investment in key sectors, and better integrate India into global value chains on more favorable terms.