Trump's Tariff Tactics
In 2025, the Trump administration introduced significant tariffs on Indian goods. These measures were primarily triggered by India's continued import of
Russian oil, and also due to trade imbalances between the two nations. Among these were a 25% penalty tariff imposed on August 27, 2025, specifically targeting India's refusal to halt Russian oil imports. Furthermore, in January 2026, President Trump supported a new sanctions bill, which could escalate punitive tariffs to 500% for countries still purchasing Russian oil. Additionally, there was a 10% baseline tariff applied to nearly all US imports starting in April 2025. Another aspect was a 15% reciprocal tariff, designed to counter India's own high tariffs on US products.
Budget's Defensive Strategy
The Indian government responded to these tariffs with several measures outlined in the 2026 Budget, presented by Finance Minister Nirmala Sitharaman. The core strategy involved customs duty exemptions. By eliminating basic customs duties (BCD) on critical inputs, the government aimed to decrease the production costs for Indian manufacturers. This action aimed to keep products competitive in the international market, even when facing high US tariffs. The budget's exemptions were specifically designed to act as a "shield" against the impact of the US tariffs, according to experts.
Duty Exemptions Detailed
The Budget contained various specific exemptions. Existing exemptions on imports for nuclear power projects would be extended until 2035. Basic customs duties on components used for manufacturing microwave ovens were removed. Similar exemptions were introduced for civil and defense aircraft manufacturing materials. The government also proposed exempting customs duties on capital goods necessary for critical minerals. Furthermore, the budget extended duty-free import limits for specified inputs used in seafood, leather, and textile exports. Basic customs duty exemptions were also considered for capital goods used in manufacturing Battery Energy Storage Systems. There was also a proposal to exempt customs duty on sodium antimonate, which is used in the manufacture of solar glass.
Streamlined Customs Processes
To further support exporters and manufacturers, the 2026 Budget included measures to streamline customs procedures. A Customs Integrated System (CIS) was scheduled to be rolled out within two years. This platform would integrate all customs processes into a single, scalable system. Moreover, approvals required from various government agencies for cargo clearance would be processed through a single, digital window by the end of the financial year. For goods without compliance requirements, customs clearance would happen immediately after online registration, subject to duty payment. This approach aimed to facilitate quicker and more efficient trade.
Specific Sector Impacts
Targeted sectors, such as seafood, leather, and textiles, were significantly impacted by the US tariffs. The budget responded by expanding duty-free import limits for their essential manufacturing components. This was intended to reduce costs and maintain the competitiveness of these sectors. The focus was on allowing manufacturers to reduce the "landed price" of their exports. This would be achieved by cutting the cost of raw materials and capital goods used in production. The measures also proposed allowing duty-free imports of specified inputs for leather exports.
