Budget targets US tariff shock with customs relief, manufacturing support and logistics reforms

New Delhi: Confronted with sustained trade pressure from the United States and growing volatility in global commerce, Finance Minister Nirmala Sitharaman on Sunday announced a broad set of customs, manufacturing and logistics measures in the Union Budget aimed at protecting jobs, easing export costs and insulating labour-intensive sectors from the impact of steep American tariffs.

The Budget was presented against the backdrop of continued uncertainty over a US-India trade agreement and a cumulative 50 per cent duty now faced by many Indian exports to the US. Since April 2025, Indian goods have been subjected to a 10 per cent baseline tariff, a 15 per cent reciprocal tariff and a 25 per cent penalty imposed in August 2025 over India’s continued purchase of Russian oil. In January 2026, US President Donald Trump also backed legislation that could raise punitive tariffs to as high as 500 per cent for countries that continue importing Russian oil.

Seeking to blunt the impact of these measures, Sitharaman announced wide-ranging basic customs duty exemptions on critical inputs and capital goods, along with targeted relief for sectors such as textiles, seafood, leather and manufacturing units located in Special Economic Zones.

A key intervention was a special one-time measure to allow eligible manufacturing units in SEZs to sell a portion of their output in the Domestic Tariff Area at concessional duty rates. The quantity of such sales will be capped at a prescribed proportion of exports, with regulatory changes to be introduced to maintain parity with domestic manufacturers. “To address the concerns arising about utilisation of capacities by manufacturing units in the Special Economic Zones due to global trade disruptions, I propose, as a special one-time measure, to facilitate sales by eligible manufacturing units in SEZs to the DTA at concessional rates of duty,” Sitharaman said in her Budget speech.

India has 370 operational SEZs as of June 2025, employing over 31 lakh workers across sectors such as garments, leather, electronics and seafood processing. Data shared by the Commerce and Industry Ministry shows that 466 units shut down in seven SEZs over the last five years until FY25, as several exporters dependent on the US market struggled to absorb tariff shocks.

Indian goods exports declined for two consecutive months in September and October amid the tariff impact, with exporters warning of cancelled orders and idle capacity. In a letter last month to Vice President C P Radhakrishnan, apparel exporters cautioned that continued tariffs without a trade deal could permanently erode India’s market share. The Apparel Export Promotion Council said recent US actions, including a 25 per cent tariff and an additional 25 per cent oil-related penalty, were causing order stoppages and job losses.

The textile and apparel sector received a major push through an Integrated Programme covering the entire supply chain. Sitharaman announced a National Fibre Scheme for natural fibres such as silk, wool and jute, along with man-made and new-age fibres. A Textile Expansion and Employment Scheme will provide capital support for machinery, technology upgrades and common testing and certification centres. A National Handloom and Handicraft Programme and a Tex-Eco Initiative were also announced. The textile industry contributes 13 per cent to industrial production, 12 per cent to exports and around 2 per cent to GDP, with nearly 80 per cent of the value chain concentrated in MSME clusters.

On the customs front, the Budget extended basic customs duty exemptions for imports required for nuclear power projects till 2035 and announced duty-free imports of capital goods for critical minerals. Components for civilian training aircraft, microwave ovens, Battery Energy Storage Systems and sodium antimonate used in solar glass manufacturing were also exempted.

Duty-free import limits for inputs used in seafood processing for export were raised to 3 per cent from 1 per cent of the Free on Board value of the previous year’s exports. Vietnam imported 359 million dollars worth of Indian marine products during April to October 2025, a 110 per cent rise from a year earlier, as exporters sought alternative markets. The government also extended duty-free imports of specified inputs to shoe uppers and lengthened the export obligation period from six months to one year for exporters of leather, footwear and textile garments. Addressing logistics bottlenecks, Sitharaman announced a Rs 10,000 crore container manufacturing scheme over five years to reduce dependence on China, which produces about 95 per cent of global shipping containers. The move follows persistent shortages flagged by exporters since the pandemic and renewed concerns after the Red Sea disruptions.

To speed up trade, the Budget proposed a single digital window for cargo clearances by the end of the financial year and the rollout of a Customs Integrated System within two years as a unified platform for all customs processes.