India's Budget 2026: Strengthening Domestic Manufacturing and Promoting Self-Reliance

Trade realignments, tariff volatility & the reconfiguration of global supply chains are reshaping the international economic landscape. Against this backdrop, instead of broad-based tariff reductions, the Budget has lowered import duties in specific sectors to strengthen domestic manufacturing, explains Bipin Sapra. Budget 2026 builds on India’s domestic capabilities, with a clear emphasis on strengthening self-reliance and reducing imports dependence. The government’s decision to grant exemption on import of key inputs such as monazite and sodium antimonate signals its intent to strengthen India’s clean energy ecosystem. In the consumer electronics sector, duty exemptions on specified parts used in the manufacture of microwave ovens aim to deepen domestic value addition. Further, with the objective of reducing the overall cost of maintenance, repair and overhaul activities in the defence sector, the government has introduced exemptions on raw materials used in the manufacture of relevant components. Collectively, these exemptions represent a strategic effort to enhance domestic manufacturing capabilities and reduce reliance on imported finished goods. They complement existing initiatives, including the scheme to promote rare earth permanent magnets launched in December 2025, and reflect a broader policy push to integrate India further into global value chains. The budget has announced various measures impacting individual consumers and international travellers. This includes reducing basic customs duty (BCD) on all dutiable goods imported for personal use by half, i.e., from 20% to 10%. This has been complemented by the introduction of new Baggage Rules 2026, which raise the duty-free allowance from 50,000 to75,000, along with additional simplification measures. These changes align with the government’s broader ‘ease of living’ objective aiming to modernise customs procedures to facilitate seamless digital purchases, enhance compliance and lower import costs for consumers. Given that such imports constitute a relatively small share of total import volumes, the measures are expected to have a limited impact on customs revenue. The government has extended BCD exemptions to cover seven additional rare diseases, allowing duty-free import of drugs, medicines, and food for special medical purposes (FSMP) used in their treatment. Additionally, BCD on 17 essential drugs and their bulk drugs has been rationalised to nil. These measures aim to lower the cost of critical treatments and improve access to vital medicines for patients battling with cancer or other rare diseases, reflecting the government’s ongoing focus on strengthening healthcare infrastructure and easing the financial burden on patients. Measures relating to increase in duty tariff are likely to discourage imports in such areas and promote a more favourable environment for domestic manufacturers. In line with this objective, the government has raised tariffs and removed certain exemptions on inputs such as potassium hydroxide which is used for manufacturing chemicals and soaps. This is expected to support domestic production, enhance competitiveness, and reduce reliance on imported goods. The government projects around 5% growth in customs duty collections, a reasonable expectation given several structural factors. Customs duties, alongside GST, have been rationalised, particularly on raw materials and intermediate goods, to support domestic manufacturing and enhance cost competitiveness. At the same time, several free trade agreements operationalised in FY 2025, such as the India-UK CETA and India-Oman CEPA, allow duty-free or preferential-rate imports, moderating customs revenue. Collectively, these policies temper customs duty growth, reflecting a deliberate focus on long-term industrial development over short-term revenue gains. Through the multiple schemes targeted at the manufacturing sector, such as the India Semiconductor Mission 2.0 and the Electronic Component Manufacturing Scheme, the government seeks to advance its ‘Make in India’ agenda. The Budget has also introduced targeted measures to support MSMEs. Overall, the Budget takes significant steps to make imports more seamless. With AI-powered consignment scanning and proposed integration of multiple regulatory portals into a single-window system, the government aims to cut delays, lower costs, and enhance compliance. These measures signal a clear push toward digitalising trade infrastructure and strengthening India’s position as a globally competitive manufacturing and trading hub. The writer is Partner and Indirect Tax Leader, EY India. With inputs from Swati Saraf Pahuja, Director – Tax, EY India. Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.