How Trump tariffs shaped FM Sitharaman's manufacturing push in Budget 2026

With US tariffs hitting Indian exports, Budget 2026-27 doubles down on manufacturing, capex and targeted relief for tariff-hit sectors

The impact of higher US tariffs imposed under President Donald Trump was visible across the Union Budget for financial year 2026-27, with Finance Minister Nirmala Sitharaman framing the year’s fiscal strategy around manufacturing resilience, export competitiveness and supply-chain security amid a tougher global trade environment.

 

Presenting the Budget on Sunday, February 1, Sitharaman flagged the strain from rising protectionism, saying, “Today, we face an external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted.” 

 

Relief for tariff-hit trade sectors

 

The Trump administration imposed successive tariff hikes on Indian goods in 2025. The US President first announced a 25 per cent tariff in April 2025, citing trade imbalance, and later raised it to 50 per cent, citing India's continued purchase of Russian crude. Therefore, several Budget measures directly addressed export sectors hit by higher US duties, particularly textiles, leather and seafood.

 

For seafood exporters, the government increased the limit for duty-free imports of specified inputs used for processing marine products from 1 per cent to 3 per cent of the previous year’s export turnover. The move comes as Indian seafood exports face steep tariff barriers in the US, threatening margins and volumes.

 

Textiles and leather exporters also received relief, with the Budget extending the export period for garments, footwear and leather products made from duty-free imported inputs from six months to one year. Duty-free imports of inputs were extended to shoe uppers as well, widening export eligibility.

 

A special one-time measure was announced to allow eligible manufacturing units in special economic zones to sell into the domestic tariff area at concessional duty rates, addressing capacity utilisation issues arising from global trade disruptions.

 

Manufacturing takes centre stage

 

A thrust on manufacturing and capital expenditure (capex) in Budget 2026-27 reflects the government’s response to tariff shocks from the US, India’s largest export destination.

 

Public capex was raised to ₹12.2 trillion for FY27, up from ₹11.2 trillion in FY26, to support infrastructure, logistics and industrial ecosystems. The Budget also expanded support for seven strategic and frontier manufacturing sectors, including semiconductors, electronics components, biopharma, chemicals, capital goods and textiles.

 

The Electronics Components Manufacturing Scheme outlay was increased to ₹40,000 crore, while India Semiconductor Mission 2.0 was announced to deepen domestic chip manufacturing and reduce reliance on vulnerable global supply chains. The finance minister also announced ₹10,000 crore for a new container manufacturing scheme.

 

The Budget reinforced the logistics backbone critical to export competitiveness through major freight corridors and transport investments. The government announced new dedicated freight corridors connecting Dankuni in the East to Surat in the West, alongside the operationalisation of 20 new National Waterways linking mineral-rich regions, industrial centres and ports.

 

Rare earths and strategic materials

 

Budget 2026-27 also responded to disruptions caused by the US-China tariff conflict, which has tightened access to critical minerals.

 

Sitharaman announced dedicated rare earth corridors in Odisha, Kerala, Andhra Pradesh and Tamil Nadu to promote mining, processing, research and manufacturing of rare earth permanent magnets. These inputs are critical for electronics, defence equipment, electric vehicles and renewable energy systems.

 

Customs duty exemptions were also extended to capital goods required for processing critical minerals, reinforcing the focus on domestic value chains for strategic resources.

 

Services sector and export resilience

 

While goods trade faced tariff pressure, the Budget sought to strengthen India’s services exports as a counterbalance.

 

A high-powered ‘Education to Employment and Enterprise’ Standing Committee was announced to position services as a core driver of Viksit Bharat, with an explicit focus on export. In taxation, IT services were brought under a single category with a common safe harbour margin of 15.5 per cent, easing compliance for globally integrated firms.

 

The Budget also offered tax holidays till 2047 for foreign companies providing global cloud services using India-based data centres, signalling an effort to attract investment even as goods trade faces friction.

 

Why it matters

 

The Union Budget’s manufacturing push is closely tied to external balance concerns highlighted in the Economic Survey, which pointed to India’s persistent goods trade deficit and dependence on foreign capital inflows to stabilise the rupee.

 

The Survey noted that while a weaker rupee currently offers limited relief by offsetting part of the impact of higher US tariffs, it also makes investors cautious and cannot substitute for sustained export growth. By scaling up manufacturing, improving logistics through freight corridors and reducing import dependence, Budget 2026-27 seeks to address the core issues of the trade gap and support longer-term currency stability in an increasingly protectionist global environment.