As India grapples with steep trade barriers imposed by the United States under President Donald Trump, Finance Minister Nirmala Sitharaman has turned to customs duty rationalisation as a key economic countermeasure in the Union Budget 2026. The Budget proposes a sweeping set of basic customs duty (BCD) exemptions across critical manufacturing sectors, aimed at lowering production costs and shielding Indian exporters from the impact of punitive American tariffs.
Presenting the Budget in Parliament on Sunday, Sitharaman announced exemptions covering everything from civil and defence aircraft components and nuclear power equipment to seafood processing inputs, leather exports and renewable energy manufacturing. The measures come at a time when several Indian exports to the US are facing an effective duty burden of up to 50 per cent, with the threat of even harsher penalties looming.
Wide-ranging customs duty relief
Among the most significant announcements is the extension of the existing basic customs duty exemption on imports of goods required for nuclear power projects till 2035. The move is expected to provide long-term cost certainty for India’s nuclear energy expansion plans, which are increasingly being seen as critical to meeting climate commitments and energy security goals.
The Budget also provides BCD exemptions on capital goods required for the processing of critical minerals, an area of growing strategic importance as India seeks to reduce dependence on China-dominated supply chains for rare earths and battery materials.
In a major boost to the aviation sector, the government has exempted basic customs duty on components and parts required for the manufacture of civilian training aircraft and other non-military aircraft. This is expected to support India’s ambitions to emerge as a manufacturing hub for civil aviation, complementing its push for indigenous defence production.
Other exemptions include specified parts used in the manufacture of microwave ovens, capital goods for Battery Energy Storage Systems (BESS), and sodium antimonate, a key input in the manufacture of solar glass. Together, these measures signal a clear policy tilt towards supporting domestic manufacturing in electronics, clean energy and high-value engineering sectors.
Export-focused relief for labour-intensive sectors
Recognising the disproportionate impact of US tariffs on labour-intensive export sectors, the Budget has also expanded duty-free import limits for seafood processing inputs. The limit has been raised to 3 per cent from the earlier 1 per cent of Free On Board (FOB) value, a move that exporters say will help absorb higher tariff costs in the US market.
Similarly, duty-free imports of specified inputs have been allowed for leather exports, another sector that has been badly hit by declining margins and rising trade barriers in Western markets.
The government has also announced a special one-time measure allowing eligible manufacturing units in Special Economic Zones (SEZs) to sell goods in the Domestic Tariff Area (DTA) at concessional “constructional” rates of duty. This is expected to provide immediate liquidity relief to SEZ units facing export slowdowns due to global trade disruptions.
Trade facilitation and digital customs push
Beyond tariff policy, the Budget outlines significant reforms in customs administration. Approvals required for cargo clearance from multiple government agencies will be processed through a single, interconnected digital window by the end of the financial year. For goods without compliance requirements, customs clearance will be granted immediately after online registration and payment of duty.
The government has also announced the rollout of a Customs Integrated System (CIS) within two years. The CIS will function as a single, scalable digital platform for all customs processes, aimed at reducing delays, improving transparency and cutting transaction costs for exporters and importers alike.
What are Trump Tariffs and why they matter
Since 2025, the Trump administration has imposed a series of tariffs on Indian goods, citing trade imbalances and India’s continued purchase of Russian oil.
As of February 2026, Indian exports to the US are subject to a cumulative duty structure comprising a 10 per cent baseline tariff, a 15 per cent reciprocal tariff, and a 25 per cent penalty tariff imposed in August 2025. In January 2026, President Trump further endorsed a sanctions bill that could raise punitive tariffs to as high as 500 per cent for countries continuing energy trade with Russia.
How the budget measures offset tariff shock
The customs duty exemptions announced in Budget 2026 are designed to act as a cost-side “shock absorber” against US tariffs. By reducing or eliminating duties on critical raw materials, components and capital goods, the government aims to lower the landed cost of Indian exports, helping manufacturers remain competitive despite high entry barriers in the US market.
Sectors such as seafood, leather, renewable energy equipment and advanced manufacturing stand to gain the most, as lower input costs could partially offset tariff-induced price disadvantages. Exemptions for critical minerals, lithium-ion components and solar glass are also intended to move Indian manufacturing “down the cost curve”, positioning the country as a viable alternative in global supply chains reshaped by protectionism.
Taken together, Sitharaman’s customs duty strategy reflects a broader shift in India’s trade policy, from reactive tariff retaliation to proactive cost competitiveness, at a time when geopolitical tensions are increasingly shaping global commerce.
