Union Budget 2026: India Considers Measures to Reduce Import Reliance

With the Union Budget 2026 just a month away, drafting of policy proposals is under way. As per sources, this time the focus will be on reducing India’s dependence on foreign imports, especially where domestic production exists or can be scaled up. With this aim, the government is also eyeing the narrowing of the widening merchandise trade gap and strengthening supply chains.

Trade Imbalance Driving Policy

In recent years, the merchandise trade deficit has been a real concern among policymakers. Data for the first eight months of the current financial year, from April to November, show that India exported goods worth $292 billion. However, imports stood at $515.2 billion. These numbers expose India to external vulnerabilities.

Trade experts and commerce ministry officials say that while India has strengthened its export sectors, structural import dependence in capital goods, intermediates, and consumer categories remains high. A key objective of upcoming budget measures is to ‘de-risk’ supply chains by reducing dependence on single-country suppliers and high-risk imports.

Higher Duties and Targeted Incentives Under Review

To deal with these vulnerabilities, the government is considering a mix of higher customs duties. A list of around 100 goods has been prepared so far for fiscal support or tariff adjustment. This list spans engineering goods, steel products, machinery, and consumer items such as suitcases and flooring materials. For many of these, current basic customs duties (BCD) range between 7.5% and 10%, and the government is considering calibrated increases to improve the competitiveness of local players.

New Sectoral Incentives

Sectors that may receive focused support in the upcoming budget include:

• Drone Manufacturing:

The domestic drone industry may see a ₹10,000-crore incentive plan. If introduced the scheme will feature a two-tier subsidy to boost local manufacturing and reduce reliance on imports. While not fully mandatory, about 50–60% of the drone components will need to come from local suppliers.

• Rare Earth Magnets:

The government has rolled out a ₹7,300-crore plan to create a homegrown ecosystem for producing permanent magnets. If you are not familiar, these rare earth magnets are crucial for electric vehicles, renewable energy, and electronics. Right now, India relies heavily on imports for them, especially from China. (ET)

• Pharmaceutical Sector:

The proposal also includes exempting drugs manufactured in Special Economic Zones (SEZs) and sold in the domestic market from customs duty. This will not only reduce production costs but also make key medicines more easily available in local markets.

Industry and Trade Reactions

The proposal has seen a mixed response from both business and industry groups. Several analysts have welcomed incentives for localisation and diversification of supply chains. However, some caution that higher tariffs on inputs could raise costs for domestic manufacturers that rely on imported components.

For example, electronic and smartphone companies have previously urged the government to rationalise input tariffs and introduce long-term incentives for component manufacturing. Industry associations argue that competitive input costs are essential for integrating Indian manufacturing into global value chains.

Analysts say that getting the balance right will be key. While protective duties can help local producers, they might also push prices up or create supply issues if alternatives aren’t ready. A steel industry spokesperson put it simply: boosting the quality and price competitiveness of domestic products is essential for any import-replacement plan to really work.

Sources:

Moneycontrol
ETManufacturing
ET
Financial Express
ET