Budget 2026 expectations: Focus on customs facilitation

Budget 2026 could boost trade, manufacturing, customs simplification and more automation.

Key takeaways

In Budget 2026, the government may announce measures to boost private investment.
Regular review of duty rates and exemptions should continue.
As India aims to be a global player, the focus may be on removing distortions like inverted duties rather than protectionism.
Customs facilitation, simplification, speedier customs clearances supported by automation can reduce transaction costs.
More focus is needed to remove revenue bias in adjudication and appeals.

The time now is to do a deep dive and identify pathbreaking reforms for enhancing customs facilitation. Budget 2026 can benefit from moving in this direction, maybe by setting up an expert committee.

Sandeep M Bhatnagar

Associate Partner, Indirect Tax, EY India

For your convenience, a full text transcript of this podcast is available on the link below:

Pallavi

Welcome to Budget Insights, a podcast series from EY India Insights, where we discuss perspectives on key policy developments shaping India’s economic and business landscape.

I’m your host Pallavi, and in today’s pre-Budget episode, we focus on trade policy, tariffs and customs priorities ahead of the Union Budget 2026, especially in the context of ongoing global trade tensions.

We are pleased to be joined by Sandeep M Bhatnagar, Associate Partner, Indirect Tax, at EY India. Mr. Bhatnagar brings deep experience in indirect taxes, customs and trade policy, advising businesses on navigating complex cross-border trade environments and regulatory frameworks.

In this episode, Mr. Bhatnagar shares his perspectives on how the Union Budget 2026 can help insulate India’s growth amid global tariff actions, the role of strategic tariff policy in supporting domestic manufacturing, the importance of trade facilitation and customs simplification to manage external headwinds.

Mr. Bhatnagar, thank you for joining us, It is pleased to have you with us here today.

Sandeep Bhatnagar

Thank you, Pallavi. Thank you for having me.

Pallavi

To begin with, Mr. Bhatnagar, with the global trade tensions and tariff actions continuing, how can Union Budget 2026 help insulate India's growth while remaining aligned with its global trade commitments?

Sandeep Bhatnagar

That's an important question. Although in light of the recent geopolitical developments now, I think we have to view these developments in perspective. And as you know, India is a leading economy. And despite the Indian upheavals globally, our GDP growth rates remain intact and unmatched globally. So all this goes to show that our fundamentals remain strong.

Because of this fundamental strength, I strongly believe that we will overcome the present adverse developments. It is only a matter of time. In fact, some relief may be around the corner as the trade deal with the US appears to be closer to fortify. Having said that, there is no doubt that the present tariff actions have impacted India in a big way because the US is the top export market.

And the impact has been sweeping. No export segment has been sort of sheltered from the impact. The impact is seen across in all major sectors, whether it be pharma, textiles or gems and jewelry, to name a few. The positive is that the government has already stepped in to support industry. It is initiating new programs such as the Export Promotion Mission, which is focused on SMEs and labor intensive sectors with significant budget outlays.

Niryat Disha is another program which very aptly seeks to support the logistics, which is so critical not only for domestic competitiveness but even for exports. I expect Budget 2026 to continue on the reform path, of course, with renewed focus on incentivizing investment and enhancing productivity. Infrastructure, as I just mentioned, is a key area and not only for domestic growth, but for exports, and couple that with skill development.

These are the two parameters which will majorly make industry be competitive. So, I expect the government to focus on both these critical aspects.

Admittedly, despite all what has been done so far, the manufacturing employment is sluggish. So that's one area which will again get some focus in the Budget, as it rightly should, because it can boost manufacturing, employment. That, in turn, influences disposable income, which of course, in turn supports consumption demand.

I would expect some move by the government to boost private investment, which is somewhat lagging. If that is done, then that private investment should supplement public expenditure. And that will be very welcome.

The government has always focused on ease of living. So, that is another area which will involve both the Center and the states.

Any response to the global environment will be incomplete unless we focus on technology. AI, I am of the view that the best way to insulate our economy from global shocks is to strengthen it further. That can be done only by creating a more conducive environment for investment, productivity and employment.

I essentially see the Budget focusing on measures to fix the identified domestic constraints. India recognizes that despite the present global shocks, especially the tariffs, global interdependence is a reality that will always exist and we must be ready to take advantage.

I will just sum up by saying that the need of the hour is for Budget 2026 to send a message of positivity to Indian industry and consumers and thereby boost domestic sentiment.

Pallavi

Adding to the previous question, do you also expect the Budget to use tariff policy more strategically to support domestic manufacturing without triggering the retaliatory risks?

Sandeep Bhatnagar

Going back in time, you know, we have seen the results of what tariff and licensing protections do, which was extended to the domestic industry for a long, long time. We have also seen the common policy of controlling the commanding heights of the economy through public sector enterprises. I do not think we should unlearn these lessons and shift focus from the present reform path.

However, admittedly, protectionism is on the high. But my take is that it is increasingly being manifested more in terms of immigration policies rather than through tariffs. By and large, the US actions are an exception to this. And of course, India has always been and continues to remain a firm believer in rule of law and cross-border trade. Its present push for more FTAs confirms this. With this background, I actually do not see the government having a knee jerk reaction to the present global developments. Previous Budgets have all focused on reducing tariff rates. And the better word is that they have nationalized the rates, typically to remove any distortions which have crept in over time.

I think that same path will continue. In fact, as a policy, the government has put in a sunset clause for exemptions already in the statute. The duty rates and exemptions are constantly reviewed, and that should continue. And, so I believe the Budget would continue on this path. The focus support would remain on removing distortions like inverted duties rather than outright protectionism. This would also be the correct approach, as India aims rightly to be a global player. In fact, a global leader. Protectionism is an inward looking strategy which may yield some results in the short run, but history shows that inefficiencies and other undesirable elements also creep in in such a policy. So essentially, the Budget is not likely to use the tariff policy to sort of become protectionist. But once it uses it to remove the distortions, then that itself is a very strategic support. It would be extending to the domestic manufacturing. And of course, once it does that, I really do not foresee any retaliatory tariffs on that.

Pallavi

Thank you. Lastly, how important is trade facilitation and customs simplification in the Budget context to offset external headwinds?

Sandeep Bhatnagar

Customs facilitation and simplification majorly impact the domestic economy and also our exports. Speedier customs clearances and supported by automation have a great effect on reducing transaction costs. And that in turn supports holistic industry in becoming more competitive. There can be no two views that customs facilitation is a big, big agenda item for any government.

I am very happy, frankly, to be observing that the present government and Indian customs have in the recent past, really leveraged technology in a big way to speed up clearances and reduce interface with importers and exporters. In fact, the current customs program—which has three key elements: faceless customs, contactless customs and paperless customs—has been a major success.

Having said that, naturally, more needs to be done. The common perception is that while the policies are largely in place and automation is largely being used in the right way, at the cutting edge level, there are still issues to be resolved. Often consignments are held up, and by and large, the relief has not extended to the importer or exporter in a timely manner.

I believe attention needs to be paid on enhancing the accountability of the individual officers. And this frankly, requires the senior management creating a service-oriented culture, That is something that needs to be given focus to.

Regarding facilitation, that is one big-ticket item that has somehow never really got the attention it deserves. Maybe one reason for that is that it requires an innovative mindset and a very bold decision. And this matter concerns departmental handling of duplication and appeals. I am sure that the listeners are aware of that.

Once the demand or the show cause notice is issued to the industry, then its adjudication is done by the department and the officers. So, the same revenue officer who has investigated the case, was supposed to interject fairly. The post appeal is also handled by the department officers. While numerous measures have been taken in the past to make this exercise of adjudication and handling appeals revenue neutral and more judicious, frankly, the perception and the reality is that there is still significant revenue bias in this decision making. So, this is one area where the government needs to look into closely because we need to find innovative solutions. In my view, is the best way forward is to dispense with the present system and go in for arbitration.

Now, while saying this, I am fully aware that this is something so novel and new that it requires a change in mindset. But if you examine it carefully, it has its advantages. It will free the customs officials to focus on revenue mobilization and customs facilitation. And on the other hand, it will really boost industry’s confidence and trust in the dispute resolution mechanism. The present government is known for taking bold decisions, and I hope that this is one area they will look at.

Just to give another example where something could be done is DTA (Domestic Tariff Area) sales by SEZs. Now this is industry’s demand. It is not a new demand but has not really got the attention it deserves. The demand is essentially to apply the best FTA rate on DTA sales or to shift to a mechanism whereby the import duty paid is equal to the duty foregone on the imports which initially took place. Even at present when the export-oriented units clear goods into the domestic market, they pay back the duty foregone which is the duty that was not paid at the time of imports. In the case of SEZs it is another mechanism, which is that they pay the duty on the finished goods as if these are imported goods, fresh. So obviously that impacts the competitiveness of the SEZ units.

By and large, these demands have been looked at but not really fructified. One reason is the law. The law does not allow it. But I believe that the sovereign has to look at the larger picture and not hold back because of technicalities and legalities. A way forward can always be found, and if that is done, then the SEZ units will become more competitive, which will lead to more investment in exports.

There are, of course, numerous other areas, such as time bound disposal of appeals filed by the government especially.

All in all, I believe that the time now is to do a deep dive and identify pathbreaking reforms for enhancing customs facilitation. Budget 2026 would be very welcome if it moves in this direction, maybe by setting up an expert committee, but comprising of industry leaders. Usually government committees majorly comprise civil servants. The Kelkar Committee years back was an exception. And that model needs to be replicated. So it would be a good step if Budget 2026 looks at customs facilitation and reform by settling an expert committee. That would greatly benefit the industrial economy as a whole.

Pallavi

Thank you, Mr. Bhatnagar. That brings us to the end of this episode. Thank you once again for sharing your valuable insights on the role of tariff policy, trade facilitation and customs reforms in strengthening India's economic resilience amid the global uncertainties.

Sandeep Bhatnagar

Thank you, Pallavi. It was a pleasure to be with you.

Pallavi

As India prepares for the Union Budget 2026, perspectives such as these help businesses understand how policy measures can balance domestic growth priorities with global trade commitments. So, thank you to all our listeners for listening in to Budget Insights from EY India Insights. Until next time, this is Pallavi signing off.

Speaker

Sandeep M Bhatnagar
Associate Partner, Indirect Tax, EY India

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Episode 05

Duration

17m 21s

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Budget 2026 expectations: Focus on customs facilitation

Key takeaways

Pallavi

Sandeep Bhatnagar

Pallavi

Sandeep Bhatnagar

Pallavi

Sandeep Bhatnagar

Pallavi

Sandeep Bhatnagar

Pallavi

Sandeep Bhatnagar

Pallavi

Speaker

Sandeep M Bhatnagar
Associate Partner, Indirect Tax, EY India

In this series

Presenters