Budget 2026: Manufacturing and customs reforms anchor India’s next industrial phase

Union Budget 2026–27 reinforces manufacturing as a central pillar of India’s growth strategy at a time when global trade uncertainty and supply-chain realignments are reshaping industrial priorities.

The finance minister’s emphasis on “action over ambivalence” is reflected in a policy framework that combines large-scale manufacturing incentives, targeted investments in strategic sectors, and calibrated customs reforms aimed at lowering costs, improving predictability, and strengthening India’s integration with global value chains.

Momentum has also continued under the Electronics Components Manufacturing Scheme, where investment commitments have exceeded expectations. This has prompted an enhanced outlay of ₹40,000 crore, signalling a policy shift towards deeper domestic value addition.

The India Semiconductor Mission (IMS) 2.0 expands beyond fabrication to cover equipment, materials, indigenous intellectual property and supply-chain resilience, recognising semiconductors as a strategic input. Together, these initiatives underscore India’s intent to move decisively into high-precision and high-value component manufacturing.

Targeted schemes for capital goods, container manufacturing, textiles, sports goods and high-tech tool rooms are designed to boost both scale and employment. Incentives for seaplane manufacturing, backed by viability gap funding, mark a shift toward demand-bridging support for niche, high-engineering sectors.

Equally important is the development of dedicated corridors and clusters for rare earth magnets and chemicals—upstream inputs critical to sectors ranging from renewable energy and electronics to defence and advanced manufacturing. By securing domestic access to these materials, the government aims to insulate Indian manufacturers from global supply shocks and geopolitical volatility.

Taken together, these measures form a coordinated strategy to build strategic indispensability for India within global supply chains.

On the import side, duties have been selectively increased on finished components and certain raw materials. For instance, higher customs duty on X-ray tubes is aimed at strengthening India’s medical devices ecosystem by encouraging domestic production. The withdrawal of exemptions on wafers used in solar cells signals intent to deepen local manufacturing in renewable energy.

Similar moves are visible across consumer goods and clean energy value chains. Higher duties on raw materials used in diapers support local manufacturing in mass-consumption segments, while the discontinuation of exemptions on permanent magnets for wind power reflects the push to build indigenous capabilities in critical clean-energy components. Even in fertilisers, duty increases on naphtha, ammonia and phosphates reflect a calibrated balance between domestic production goals and fiscal considerations.

At the same time, the Budget reflects policy pragmatism. Duties have been reduced to nil on key nuclear raw materials to support long-term clean energy goals, while exemptions on aircraft parts strengthen India’s ambition to emerge as a global maintenance, repair and overhaul (MRO) hub.

In customs, the continued shift towards digital processes, single-window clearances, risk-based assessments and trusted importer frameworks signals a move towards trust-based governance.

Budget 2026 is not about chasing quick wins. It is about laying durable industrial foundations to ensure that India’s manufacturing story is a sustained transformation built on scale, sophistication and strategic foresight.

Saurabh Agarwal and Parul Nagpal are tax partners at EY India