Union Budget 2026 Embraces Manufacturing-Led Approach to Enhance Exports and Global Integration
In a significant policy shift, the Union Budget 2026 has adopted a manufacturing-led strategy aimed at bolstering exports and strengthening India's integration into global supply chains. This strategic move comes at a critical juncture when geopolitical tensions and widespread trade disruptions are fundamentally reshaping sourcing decisions across the world.
Strategic Focus on Lowering Costs and Improving Logistics
Presenting the budget in Parliament, Finance Minister Nirmala Sitharaman emphasized that the government's focus would pivot towards lowering input costs, easing compliance burdens, and significantly improving logistics and trade facilitation. Rather than relying solely on traditional incentives, this comprehensive approach seeks to position India as a premier global manufacturing and sourcing destination.
A central pillar of this export push involves targeted customs relief specifically designed for labour-intensive sectors. In a notable move, the budget has raised the limit for duty-free imports of specified inputs used for processing seafood exports from 1% to 3% of the free-on-board value of the previous year's export turnover. This measure is strategically aimed at easing cost pressures within the vital marine sector.
Expanding Benefits for Key Industries
The budget further extends duty-free import benefits for the leather and footwear industry. These benefits now include shoe uppers, in addition to finished leather and synthetic footwear, thereby providing manufacturers with greater flexibility in sourcing inputs and supporting enhanced domestic value addition.
In another supportive measure, the government has 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. This extension directly addresses long-standing industry concerns regarding tight production timelines, working capital stress, and associated compliance risks.
Boosting Capital Goods and Construction Equipment
Signalling a parallel push to fortify domestic capital goods manufacturing, Finance Minister Sitharaman announced the introduction of a new scheme for the enhancement of construction and infrastructure equipment. This initiative is designed to support the domestic production of high-value and technologically advanced machinery.
"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 elaborated. This announcement aligns seamlessly with the government's heightened emphasis on achieving self-reliance in capital goods, a priority underscored by changing geopolitical conditions and global supply chain vulnerabilities.
Empowering MSMEs and E-commerce Exporters
For smaller exporters, including Micro, Small, and Medium Enterprises and e-commerce sellers, a significant procedural change was unveiled. The removal of the ₹10 lakh per-consignment cap on courier exports is expected to dramatically improve access to overseas markets. This change enables higher-value shipments through the courier mode, eliminating the need for smaller businesses to shift to more complex and costly cargo channels.
Strategic Customs Policy for Domestic Manufacturing
Beyond export-linked measures, the Budget strategically employs customs policy as a tool to strengthen domestic manufacturing capabilities in critical sectors. Key announcements include:
- Exemption of basic customs duty on raw materials imported for manufacturing aircraft parts used in maintenance, repair, and overhaul activities by defence sector units, thereby supporting domestic aviation and defence MRO capacity.
- Introduction of zero basic customs duty on specified parts used in the manufacture of microwave ovens, signalling a clear push towards achieving deeper domestic value addition in consumer electronics.
Focus on Clean Energy and Healthcare
The Budget also places a strong emphasis on clean energy and critical materials through targeted tariff changes:
- Reduction of customs duty on sodium antimonate used in solar glass from 7.5% to nil.
- Exemption of customs duty on capital goods required for manufacturing lithium-ion cells for battery energy storage systems.
- Reduction of customs duty on monazite to zero.
In the healthcare sector, basic customs duty was exempted on 17 additional drugs and medicines, including those used for treating rare diseases, as well as on key diagnostic components such as X-ray tubes and flat-panel detectors.
Expert Analysis and Industry Reaction
Commenting on the budget's implications, Bipin Sapra, Partner and National Indirect Tax Policy Leader at EY India, stated, "The Budget simplifies the customs tariffs by rationalizing exemptions and embedding effective rates, while extending targeted duty relief to strengthen domestic manufacturing and exports. 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."
According to an analysis by the Global Trade Research Initiative, the Budget marks a distinct shift towards targeted tariff exemptions rather than broad-based duty cuts, with a clear emphasis on manufacturing, clean energy, defence, healthcare, 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.
The budget also introduced selective tariff increases, including a higher basic customs duty on potassium hydroxide from nil to 7.5%, reflecting a calibrated approach that combines input liberalization with limited protection for certain consumer goods.
Broader Reform Context and Future Outlook
Highlighting the broader reform agenda, Finance Minister Sitharaman noted, "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 actively collaborating with state governments to further deregulate and reduce compliance burdens.
In a related move to ease compliance, the government has withdrawn 50 products from mandatory Quality Control Order requirements. This step is designed to encourage manufacturing activity and allow smoother imports of raw materials without procedural obstacles.
Industry leaders have welcomed the focus on capital goods. Deepak Shetty, Managing Director and CEO of JCB India, said the announcement regarding construction equipment 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.
Ultimately, this package of budgetary measures reflects the government's concerted attempt to align customs policy with core national objectives: boosting manufacturing, promoting exports, and enhancing public welfare, while simultaneously easing cost pressures across sectors facing intense global competition and domestic capacity constraints.
