Union Budget 2026: How tariff rationalisation could support ‘Make in India’

The upcoming Union Budget on February 1 is expected to focus on Make in India initiative launched by PM Narendra Modi in 2014. The objective of the scheme is to increase the manufacturing sector's contribution to GDP to 25%. The scheme also targets the creation of 100 million additional jobs in the manufacturing sector.

The Modi government also aims to make India a leading destination for foreign direct investment (FDI) and a leader in design and innovation. 

One of the Big Four Accouting firm PwC (PricewaterhouseCoopers) expects tariff rationalisation to support ‘Make in India’ in the upcoming Budget. The measures listed by the firm may be largely fucused on priority sectors for ‘Make in India’ such as electronics, semiconductors; renewable energy, EVs; specialty chemicals, and defence/ aerospace.

Further pruning of customs duty slabs

PwC expects the government to continue the work initiated in the previous budget, where customs duty slabs were streamlined to a total of eight. The goal now is to further refine these rates, reducing them to just 5–6 slabs. This will enhance clarity and facilitate smoother operations for both EXIM trade and policymakers alike.

Targeted rate cuts on inputs

To ensure a more coherent and supportive trade environment, it is essential to further adjust customs duties on raw materials and intermediates. This adjustment should target sectors where the benefits of free trade agreements (FTAs) on finished goods clash with higher tariffs on necessary inputs. By aligning the duties on these inputs and intermediates with the rates for finished goods, the government can end discrepancies and foster increased local value addition.

FULL COVERAGE:  Union Budget 2026

Review of exemptions with sunset clauses for targeted extensions

A thorough review of customs exemptions is essential, particularly those approaching their sunset clauses. The goal of this review is to consider extensions only for exemptions that support key priorities—such as critical inputs, green technology, and strategic manufacturing—while ensuring that sunset dates and regular impact assessments are in place.

Targeted entry-based duty exemptions

An additional expectation may involve observing time-sensitive, entry-specific relief measures aimed at mitigating external tariff shocks (for certain products marked with Geographical Indicators), in line with precedents such as last year’s reduction in bourbon rates, to safeguard downstream competitiveness and consumer pricing.

In Union Budget 2025, the government emphasised the 'Make in India' initiative through a Rs 11.21 lakh crore capital expenditure boost. The move was aimed to make India a global manufacturing hub. Key initiatives included the launch of a National Manufacturing Mission (NMM) with Rs 100 crore, enhanced credit for MSMEs (up to Rs 20 crore), and a significant focus on labour-intensive sectors such as toys, footwear, and electronics.