At a time when the gross domestic product growth is slowing, and domestic consumption and private investments are not displaying spirited animal trends, exports are quintessential for swerving the growth momentum. New markets need to be accessed by Indian manufacturing exports. In this regard, augmenting their competitiveness by lowering costs of production is essential, especially in a scenario of unilateral and reciprocal tariffs.

With these central themes, finance minister Nirmala Sitharaman completed the Budget exercise on February 1, with the aim to incentivise sector-wise growth, bolster investments across major components in the economy, and ensure all-inclusive development. For FY26, the FM has proposed a total expenditure of over Rs 11.21 lakh crore to support infrastructure and job creation. As a foundation for long-term transformations, the Budget proposes several key amendments to both the direct and indirect tax regimes. In its quest to do so, it underscores the need to effectuate business and promote voluntary compliance. However, what caught the attention of trade experts and policymakers across the globe was India’s bold attempt to galvanise one of its most contentious pillars of taxation, the cauldron of customs.

In the weeks leading up to US President Donald Trump’s inauguration, there was considerable pondering across the world over what he would do on tariffs. Since then, a host of strategic announcements to drive the next cycle of trade competitiveness for the US has seen considerable tariff action against the likes of Canada and China. India’s Budget exercise is reflective of a strong response to the extant dynamism in geopolitics, and a synchronised response to investors and administration in the US of its commitment to their strategic partnership. This article shall appraise the Budget outcomes, and the policy rationale in signalling these friendshoring waves.

The fine print
Inverted customs duty structures have been one of the biggest impediments to competitiveness of Indian exporters. Imposed mostly ad-hoc, in response to specific demands for import protection, the duty inversions have adversely affected prospects of Indian exporters in overseas markets. High customs duties on imported inputs have often inflated the cost of production leading to high prices of final products, which, ironically, have been higher than their imported substitutes.

This was a pernicious legacy that needed correction. The Budget has harmonised reform with revisions: basic customs duties have either been scrapped or reduced on critical items. The most notable examples are for parts used in the manufacture of LCD/LED television sets; capital goods for making lithium-ion batteries; textile machinery; knitted fabrics; telecom equipment; chemicals; plastic; jewellery parts; copper, lead, and tin; and solar modules, semiconductor devices, and photovoltaic cells.
Anticipating US action on tariffs, India seems to have made the first move by revamping its tariff structure by reducing the slabs to eight rates. It proposes to fully exempt critical minerals such as cobalt powder, lead, zinc, and 12 other minerals for targeted manufacturing combines. Combined with trade facilitation measures, particularly extending the time for the end use of imported inputs, the prospects for exports certainly look brighter.

Prospects for a long-standing partnership
India and the US find symmetry in a basket of shared goals, which include building resilient supply chains; expanding collaboration in emerging technologies such as clean energy, semiconductors, and critical minerals; and tapping into India’s digital and information technology strengths. India’s growing influence in critical and emerging technologies also creates opportunities for collaboration with the US, particularly in high-value sectors such as clean energy, semiconductors, and critical minerals.

The windfall promised through an India-US collaboration on energy, climate, and technology is massive. To this end, the economies signed a memorandum of understanding on the critical mineral supply chain last October to complement the India-US Initiative on Critical and Emerging Technologies (ICET). With their collective repertoire in clean energy cooperation, robust bilateral frameworks, and evolutionary capabilities, the US and India are well-positioned to become strategic partners in ensuring global critical mineral security.
Additionally, the intention to amend the Atomic Energy Act and the Civil Liability on Nuclear Damage Act spells targeted transcendentalism. When corroborated with India’s target of 100-gigawatt nuclear power by 2047, the centennial year of its independence, the offshoots are far-reaching. India’s baroque presence on institutions like the Quad (a grouping that includes Australia, Japan, and the US) signal an intent to foster the next generation of collaboration with the States. If the announcement on amendments to the nuclear energy legislation is baptised, the Indo-US corridor on strategic nuclear initiatives can be unlocked.

The road ahead
Expanding cooperation in emerging technologies and artificial intelligence underscores the involvement in critical minerals. The ICET, which has been identified as a crucial policy development in furthering the India-US strategic partnership, is chaired by the key players in the national security establishment in the two countries. The February 1 exercise should be crystallised with seismic action, by setting up an exclusive, high-powered committee to examine the impact of the customs revisions, and a quarterly review of India’s trade figures with the US. Such attempts shall not only salvage India’s status in the realm of critical minerals, electronics manufacturing, and a trailblazing supply chain environment, but also influence and inspire scores of multinational enterprises and fund investors from the US to collaborate with the country on these sunrise sectors for the next decade.