Union Budget 2026 and Export Sector Expectations: Can India Build a Competitiveness Shield?

Union Budget 2026 and Export Sector Expectations: Can India Build a Competitiveness Shield?

As Union Budget 2026 approaches on February 1, India’s export sector finds itself at a critical crossroads. Global trade conditions have turned increasingly challenging, with recent developments such as steep US tariff hikes and slowing demand in developed markets. Against this backdrop, exporters are not merely seeking relief but a sustainable competitiveness shield that allows India to integrate deeper into global value chains.

The conversation has clearly evolved. Instead of asking for one-off incentives, industry leaders are calling for a productivity-led export strategy that improves delivery efficiency, lowers costs, and enhances domestic value addition. The choices made in Union Budget 2026 could therefore have far-reaching implications, not just for exporters but also for Indian markets, employment, and investor sentiment.

Why Union Budget 2026 Matters for Indian Exports

Exports remain a vital engine of India’s economic growth. According to the Economic Survey 2026, merchandise exports stood at $330.29 billion between April and December 2025. While this reflects resilience amid global uncertainty, the widening trade deficit continues to concern policymakers.

For exporters, Budget 2026 is expected to strike a balance between calibrated openness and domestic capability building. This includes lowering duties on essential machinery and raw materials while protecting finished goods manufacturing within India. If executed well, such measures can strengthen India’s position as a reliable global supplier rather than a cost-sensitive exporter.

Sector-Wise Export Expectations from Union Budget 2026

Electronics and Semiconductors: Moving Up the Value Chain

Electronics emerged as India’s third-largest export category in FY25, driven by smartphone manufacturing and component assembly. However, domestic value addition remains relatively low.

Industry stakeholders are expecting fresh allocations under the Electronics Component Manufacturing Scheme. A key demand is rationalisation of import duties on inputs such as printed circuit boards, connectors, and camera modules. Lower input costs can help Indian manufacturers compete with East Asian supply chains and attract higher-value export orders.

For equity investors, continued policy support could keep electronics manufacturing stocks and ancillary suppliers in focus post-budget.

Textiles and Apparel: Addressing the MSME Bottleneck

The textile and apparel sector continues to be one of India’s largest employment generators, particularly for MSMEs. Yet high logistics costs, outdated machinery, and tight margins limit export competitiveness.

Industry bodies like the Apparel Export Promotion Council are seeking a dedicated Technology Upgradation Scheme for micro-units. There is also demand for export scrips to offset freight and compliance costs.

If the budget addresses these pain points, it could revive labour-intensive exports, support rural employment, and improve earnings visibility for listed textile companies.

Leather and Footwear: Restoring Cost Competitiveness

India’s leather and footwear exporters are pushing for the reinstatement of duty exemptions on bovine crust and finished leather imports. These exemptions were crucial in keeping raw material costs competitive.

The sector has set an ambitious export target exceeding ₹1.1 lakh crore. Budget support here could help India reclaim lost global market share and benefit clusters in Tamil Nadu, Uttar Pradesh, and West Bengal.

Green Energy and EVs: Building India as a Clean-Tech Exporter

Green energy, electric vehicles, and related components are fast emerging as strategic export opportunities. Exporters are looking for enhanced Production Linked Incentive allocations for battery manufacturing and green hydrogen projects.

Such measures align well with India’s climate commitments and can position the country as a clean-tech exporter rather than just a domestic consumer. Markets are likely to track budget announcements closely for cues on renewable energy stocks and EV ecosystem players.

Structural Reforms Exporters Are Watching Closely

Fixing Inverted Duty Structures

One of the most persistent challenges across sectors is inverted duty structures, where raw materials attract higher taxes than finished goods. This erodes margins and discourages domestic processing.

Chemicals, plastics, and synthetic yarn manufacturers are particularly affected. Correcting this imbalance can immediately improve export competitiveness without increasing fiscal burden significantly.

Export Financing and Tax Certainty

Access to affordable finance remains a constraint, especially for MSMEs. Exporters are advocating a risk-sharing framework that encourages banks to lend without excessive collateral requirements.

There is also demand for extending the 15 percent concessional corporate tax rate for new export-oriented manufacturing units by another five years. Tax certainty can unlock long-term capital investment and capacity expansion.

Logistics, Testing, and Trade Digitisation

High logistics costs continue to dilute India’s export advantage. Budget 2026 is expected to push funding for accredited testing laboratories and faster clearances.

Digitisation initiatives like BharatTradeNet can reduce paperwork, cut turnaround times, and improve ease of doing business. For exporters, delivery reliability is now as important as pricing.

Trade Diversification Beyond Traditional Markets

With the India-EU Free Trade Agreement being viewed as a milestone, exporters are seeking clear budgetary roadmaps to meet European quality and sustainability standards.

Support for compliance, certification, and market access can help Indian firms reduce overdependence on a few markets and cushion global trade shocks.