Union Budget 2026: 4 ways in which it addresses US tariffs’ strain on India

“To address the concerns arising about utilisation of capacities by manufacturing units in the Special Economic Zones due to global trade disruptions, I propose, as a special one-time measure, to facilitate sales by eligible manufacturing units in SEZs to the DTA at concessional rates of duty. The quantity of such sales will be limited to a prescribed proportion of their exports. Necessary regulatory changes will be undertaken to operationalise these measures while ensuring a level playing field for the units working in the DTA,” Sitharaman said.

As of June 2025, India has 370 SEZs. The government accords these regions a simplified system of official clearances and procedures, and other benefits aimed at spurring investments and manufacturing. SEZs also enjoy various tax benefits, including duty-free imports and domestic procurement, and employ over 31 lakh people in various labour-intensive sectors.

The Budget announcement comes amid distress calls from SEZ units that completely depend on the US market and are on the verge of closure due to US tariffs under President Donald Trump. As many as 466 units have closed in the last five years (till FY25) in seven SEZs across the country, according to data shared by the Commerce and Industry Ministry in a written response to a Lok Sabha question.

US tariffs have resulted in two consecutive months witnessing a decline in Indian goods exports — September and October.

2. Modernising textile clusters

Amid concerns of irreversible damage to the textile sectors due to tariffs and missed summer orders, Sitharaman announced an Integrated Programme aimed at modernising the textile sector, focusing on each segment of the supply chain.

The Finance Minister announced the National Fibre Scheme for self-reliance in natural fibres such as silk, wool and jute, man-made fibres, and new-age fibres. Textile Expansion and Employment Scheme to “modernise traditional clusters with capital support for machinery”, technology upgradation and common testing and certification centres.

“A National Handloom and Handicraft programme to integrate and strengthen existing schemes and ensure targeted support for weavers and artisans; Tex-Eco Initiative to promote globally competitive and sustainable textiles and apparels,” she said on Sunday.

India’s textile and apparel industry matters significantly to the overall economy. It contributes 13% to industrial production, 12% to exports, and roughly 2% to GDP. Roughly 80% of India’s textile value chain is concentrated in Micro, Medium and Small Enterprise (MSME) clusters, each with its own specialisation.

In a letter to Vice President C. P. Radhakrishnan last month, Indian apparel exporters said sustained US tariffs in the absence of a trade deal could cause permanent damage to India’s market share, resulting in job losses, as there is no further shock-absorption capacity left.

“Recent US actions imposing 25 per cent tariffs and an additional 25 per cent oil-related penalty on imports are causing severe disruption to India’s textile exports, particularly to the US, India’s largest single export market. Without immediate resolution, the sector faces order stoppages, job losses, and permanent loss of market share,” Apparel Export Promotion Council (AEPC) said.

3. Addressing duty structure in labour-intensive sectors

After broad-based reforms, including the elimination of certain Quality Control Orders (legal directives issued by the government) and the reduction of duty on key input items such as cotton, Sitharaman announced further easing of the duty structure.

Indicating emphasis on the labour-intensive sector, Sitharaman proposed to increase the limit for duty-free imports of specified inputs used for processing seafood products for export, from the current 1% to 3% of the Free on Board (FOB) value of the previous year’s export turnover.

This also comes as Indian exporters have turned to other markets in recent months. For instance, Vietnam imported $359 million worth of marine products during April-October 2025 — an increase of 110% over $171.4 million during the corresponding period in 2024.

“I also propose to allow duty-free imports of specified inputs, which is currently available for exports of leather or synthetic footwear, to exports of Shoe Uppers as well. I propose to extend the time period for export of final product from the existing 6 months to 1 year, for exporters of leather or textile garments, leather or synthetic footwear and other leather products,” Sitharaman said.

4. Learning from container shortages

Sitharaman announced a Rs 10,000 crore container manufacturing scheme amid the continued shortage of the large boxes essential for trade, as well as India’s dependency on China for their supply. The allocation covers a five-year period and is aimed at creating “a globally competitive container manufacturing ecosystem.”

Triggered by the recent tensions in the Middle East, the Red Sea crisis resulted in concerns about the passage of ships through the region. The incident also exposed India’s dependency, which resulted in stopgap arrangements.

However, issues due to container shortages have persistently bugged traders since the Covid-19 pandemic. During the Board of Trade (BoT) meeting in November last year, Gujarat’s representative flagged the shortage of shipping containers and its impact on exporters. Further, Assam’s representative said tea exports from the state face hurdles due to “shipping line levies for empty containers”, in the context of the state being landlocked.

China is the largest exporter of containers, manufacturing around 95% of the large steel boxes globally. Much of the container manufacturing in China is done by a handful of highly subsidised, state-owned enterprises that have sparked security concerns in the US, EU, and India. The US has also initiated plans to de-risk its ports from over-reliance on Chinese containers and cranes. India also began production after 2021.