Union Budget 2026: India mulls barriers to cut import dependence, narrow trade gap

New Delhi: India is weighing higher customs duties and targeted incentives for a range of goods where imports remain high despite local production, in a bid to narrow the merchandise trade gap and reduce dependence on single-source supply chains. The proposed initiative could be rolled out in the upcoming budget, people aware of the development said. “There are certain goods in which we have high dependence on some geographies. We want to de-risk imports,” an official said.

“Some can be given fiscal support, while a duty increase can be done for others,” the official said.

The government has drawn up a list of about 100 goods — including engineering goods, steel products and machinery, besides consumer items such as suitcases and flooring materials — that could be considered for the incentives.

Also read: PM Modi urges Centre, states to identify 100 target products to reduce import dependence

Import duties on many of these products currently range between 7.5% and 10%. The push comes as the country’s merchandise trade gap continues to widen. India exported goods worth $292 billion in April-November of FY26, while imported goods worth $515.2 billion over the same period, underscoring policymakers’ concerns over external vulnerabilities.

Industry also has been nudged to cut its dependence on a single source in its supply chain and to develop local ones, said a person familiar with the deliberations. “The issue is low quality of certain locally produced goods and higher prices that are not competitive with imports,” a steel industry representative said.

Also read: Budget 2026: CII pitches lower import duties, ‘trust-led’ tax system, and more to Sitharaman & Co

China remains a dominant supplier

China remains a dominant supplier across several categories. For example, India imported $20.85 million worth of umbrellas in FY25, with $17.7 million sourced from China.

Spectacles and goggles imports were valued at about $114 million in 2024-25, with roughly half coming from China and a significant share routed through Hong Kong, while Italy ranked as the third-largest supplier. China also accounts for as much as 90% of India’s imports of some agricultural machinery.

The imbalance is reflected in bilateral trade. India’s goods exports to China stood at $12.2 billion in April-November FY26, compared with imports of $84.2 billion, resulting in a trade deficit of about $72 billion.