Budget 2025: FM cuts customs duty on 40 items to boost manufacturing

After a comprehensive review of the customs rate structure, the government has decided to remove seven tariff rates

Finance Minister Nirmala Sitharaman on Saturday cut basic customs duty on 40 items, including medicines, leather, motorcycles and certain critical minerals to reduce input costs, deepen value addition, correct inverted duty structure, boost domestic manufacturing and exports.

 

However, on as many as 37 items, including cars, stainless steel, bicycles and solar cells, the basic customs duty has been reduced, along with an increase in the Agriculture Infrastructure and Development Cess (AIDC), resulting in no change in the effective rate. In the case of two items - knitted fabrics and electronic display- the duty has been hiked.

 

“My proposals relating to customs aim to rationalise tariff structure and address duty inversion. These will also support domestic manufacturing and value addition, promote exports, facilitate trade and provide relief to common people,” Sitharaman said while announcing the Union Budget 2025-26.

 

 

After a comprehensive review of customs rate structure, the government has decided to remove seven tariff rates – leaving behind only eight remaining tariff rates, including ‘zero’ rate. The government has also decided not to levy more than one cess or surcharge and exempt social welfare surcharge on 82 tariff lines that are subject to a cess, she said.

 

In the previous Budget, Sitharaman had announced that the finance ministry will also do a comprehensive review of the rate structure to “rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes”.

 

According to a former trade official and founder of Delhi-based think tank GTRI, in the Union Budget 2025, the overall duty rates remain unchanged for several products, but the structure has been rebalanced– basic customs duty (BCD) has been lowered, and AIDC has been increased. “The shift allows the central government to retain more revenue because, while BCD is shared with states, AIDC is not,” Srivastava said in a report. 

 

Export boost

 

The union minister announced an export promotion mission with an allocation of Rs 2,250 crore to facilitate India’s export competitiveness, at a time when the world is staring at rising protectionism and global uncertainty.

 

Under the export promotion mission, the department of commerce, micro, small and medium enterprises (MSME) as well as the finance ministry will set up export-related targets for various sectors. There will also be support measures for MSMEs to tackle non-tariff measures in overseas markets. Easy access to export credit will also be facilitated.

 

The support for MSMEs to tackle non-tariff measure in the overseas markets comes at a time when Indian exporters set to get adversely affected by the imposition of climate-change-related non-tariff measures initiated by the European Union (EU) such as Carbon Border Adjustment Mechanism (CBAM) and EU Deforestation Regulation (EUDR).

 

Interestingly, despite requests from the commerce department as well as exporters, the finance ministry did not extend the interest equalisation scheme (IES) for exporters– that especially aims to benefit MSMEs. According to the budget document, the revised estimate of the scheme stood at Rs 2,250 crore. Allocation towards the market access initiative (MAI) scheme has also been removed.

 

Sitharaman further said that the digital public infrastructure – BharatTradeNet – for international trade will be set-up as a unified platform for trade documentation and financing solutions. This will complement the Unified Logistics Interface Platform (ULIP).

 

The government will also set up a National Manufacturing Mission covering small, medium and large industries for furthering the Make in India initiative. This will be done by providing policy support, execution roadmaps, governance and monitoring framework for central ministries and states.