Union Budget 2026: Strategic Moves to Ease US Tariffs' Pressure on Indian Economy
In a decisive response to the ongoing challenges posed by US tariffs, Finance Minister Nirmala Sitharaman presented the Union Budget 2026, unveiling a comprehensive package aimed at safeguarding India's labour-intensive sectors and enhancing global trade competitiveness. Delivered on February 1, 2026, from Mumbai, the budget speech highlighted critical interventions designed to address the strain from sustained 50% tariffs and uncertainties in US-India trade relations.
1. Special Economic Zones: A Lifeline for Manufacturing Units
To prevent job losses and support manufacturing units in Special Economic Zones (SEZs), Sitharaman announced a special one-time measure. This initiative allows eligible SEZ units to sell goods to the Domestic Tariff Area (DTA) at concessional duty rates, with sales limited to a prescribed proportion of their exports. The move aims to utilise idle capacities caused by global trade disruptions, ensuring a level playing field for DTA units. With 370 SEZs across India employing over 31 lakh people, this measure is crucial as data shows 466 units have closed in the last five years due to US tariffs under President Donald Trump, impacting exports negatively in recent months.
2. Modernising Textile Clusters for Global Competitiveness
Addressing concerns of irreversible damage to the textile sector, the budget introduced an Integrated Programme focusing on modernising the entire supply chain. Key components include the National Fibre Scheme for self-reliance in natural and man-made fibres, the Textile Expansion and Employment Scheme for capital support in machinery upgrades, and the National Handloom and Handicraft programme for weavers and artisans. The Tex-Eco Initiative promotes sustainable textiles, vital as the industry contributes 13% to industrial production and 12% to exports, with 80% of its value chain in MSME clusters facing potential job losses from US tariffs.
3. Duty Structure Reforms in Labour-Intensive Sectors
Building on previous reforms, Sitharaman proposed easing duty structures to boost exports in labour-intensive areas. Key announcements include:
- Increasing the duty-free import limit for seafood processing inputs from 1% to 3% of the previous year's export turnover.
- Extending duty-free imports to Shoe Uppers for leather and synthetic footwear exports.
- Extending the export period for leather, textile garments, and footwear from 6 months to 1 year.
These changes come as Indian exporters diversify to markets like Vietnam, where marine product imports surged by 110% in 2025, highlighting the need for competitive measures.
4. Container Manufacturing Scheme to Reduce Dependency
To tackle persistent container shortages and reduce reliance on China, Sitharaman announced a Rs 10,000 crore scheme over five years for container manufacturing. This aims to create a globally competitive ecosystem, addressing issues exposed by the Red Sea crisis and Covid-19 pandemic. With China producing 95% of global containers, this initiative supports India's strategic autonomy, following similar moves by the US and EU to de-risk from Chinese supplies.
Overall, the Union Budget 2026 demonstrates a strong focus on mitigating global trade volatility, with targeted measures to enhance resilience in key sectors amid ongoing US tariff pressures.
