Union Budget 2627: Customs Duty Rationalization to Boost Manufacturing, Exports, and Domestic Industry

 Author : Aswin Anil



In a bold move to simplify India’s tariff framework and boost domestic industry, Finance Minister Nirmala Sitharaman, presenting her ninth consecutive Union Budget in the Lok Sabha, proposed a sweeping rationalization of the customs duty structure.

The highlight of this reform is a reduction in the tariff rate on all dutiable goods imported for personal use from 20% to 10%, a step aimed at easing the burden on individuals while streamlining the duty system. “This move is designed to make India’s customs framework simpler, fairer, and more predictable,” the Finance Minister said.

But the reforms extend far beyond personal imports. The Budget 2627 is strategically designed to strengthen manufacturing, support exporters, and ensure the country’s supply of critical materials for emerging industries and infrastructure projects.

Support for Exporters and Key Industries

To reinforce India’s export competitiveness, the budget proposes raising the duty-free import limit for inputs used in seafood processing for exports from 1% to 3% of the FOB value of last year’s export turnover.

Leather exporters, currently under pressure from steep US tariffs of up to 50%, also benefit. The Finance Minister proposed duty-free imports of specified inputs for leather export promotion. This follows the 2025 move, which removed the 20% export duty on crust leather and fully exempted basic customs duty on wet-blue leather, encouraging domestic processing and creating jobs.

In addition, capital goods required for processing critical minerals will now be exempt from basic customs duties, ensuring India’s strategic industries are not hampered by import costs. Nuclear power projects will similarly receive customs duty exemption on essential goods until 2035, signaling long-term government support for strategic infrastructure.

Boosting Manufacturing and Local Value Chains

The budget also seeks to deepen local value chains in multiple sectors. Some key measures include:

  • Aviation Sector: Customs duties reduced on components and parts for manufacturing civilian aircraft, along with exemptions on imported materials for maintenance, repair, and overhaul.

  • Consumer Electronics: Specified parts for microwave oven manufacturing are now exempt from basic customs duty, lowering production costs for domestic manufacturers.

  • Technical Textiles: Customs duty on knitted fabrics has been set at 20% or ₹115 per kg, promoting technical textiles like agrotextiles, medical textiles, and geotextiles.

  • Shipbuilding: Exemptions on Z materials, components, and consumables extended by 10 years to support domestic shipbuilding.

  • Display Technology: While customs duty on interactive flat panel displays increased from 10% to 20%, open cell components now attract a 5% duty, balancing import costs with domestic production incentives.

These measures are carefully designed to encourage “Make in India”, reduce dependence on imports, and enhance India’s global competitiveness in high-value manufacturing sectors.

Strengthening the Renewable and EV Sectors

The 2627 budget continues India’s push toward sustainability and clean energy. 35 capital goods for EV battery production and 28 for mobile phone batteries are now exempt from customs duty. Critical minerals such as cobalt powder, lithium-ion battery waste, lead, and zinc are also exempted, ensuring stable raw material supply for key industries.

Additionally, sodium antimonate imports for solar glass manufacturing are now duty-free, reflecting India’s commitment to renewable energy infrastructure. These incentives are expected to create employment opportunities and encourage innovation in the fast-growing clean energy sector.

Healthcare and Pharmaceuticals

Healthcare manufacturing also receives a boost. Customs duties on 17 essential drugs have been reduced, and medicines for cancer treatment are now fully exempt from basic customs duty. Further, seven drugs for rare diseases will also be added to the exempt list, making life-saving treatments more affordable and accessible.

By easing import costs for pharmaceuticals, the budget supports India’s domestic drug industry while safeguarding public health.

Macroeconomic Impact and Consumer Benefits

Budget 2627 comes at a critical time when India has demonstrated resilience against prohibitive US tariffs and global trade uncertainties. The customs duty rationalization, along with income and consumption tax reliefs, is expected to boost consumer spending and stimulate domestic demand.

Government spending on infrastructure development—coupled with these tariff reforms—is projected to support India’s GDP growth of 7.4% for the year ending March 31st. By reducing the cost of imported components for multiple sectors, the budget not only lowers production costs but also encourages the development of domestic supply chains, increasing employment and investment opportunities.

Strategic Focus on Future Industries

From leather exports to EV batteries, solar glass, aerospace components, and technical textiles, Budget 2627 reflects a clear vision for India’s industrial future. By combining tariff rationalization with targeted exemptions, the government aims to:

  • Promote domestic manufacturing and job creation.

  • Strengthen India’s position as a trusted global supplier.

  • Ensure a reliable supply of strategic minerals and raw materials.

  • Support export competitiveness in high-value sectors.

In essence, the customs duty reforms are more than just economic adjustments—they are strategic tools to align India’s industrial growth with global opportunities.

Conclusion

Finance Minister Nirmala Sitharaman’s ninth consecutive Union Budget sends a powerful signal: India is committed to simplifying taxation, fostering innovation, and empowering industries and citizens alike.

By reducing tariffs, providing duty exemptions, and supporting emerging sectors, the budget aims to make domestic production more competitive, stimulate exports, and encourage investment in high-value industries. These measures, combined with infrastructure spending and tax relief, are expected to fuel economic growth, create jobs, and secure India’s position as a global manufacturing and export hub.

As the world’s fastest-growing major economy navigates trade uncertainties and global competition, Budget 2627 charts a path for sustainable growth, resilience, and industrial self-reliance.