By Mukesh Butani & Shankey Agrawal, the writers are partners at BMR Legal Advocates
Supply chains across the globe traditionally operate on the trinity of speed, reliability, and cost. However, since the US led tariff war, this equilibrium has been broken, and supply chains are now guided by macroscale geopolitical conditions. Business decisions have now become contingent on political conditions, rather than a sound commercial logic. Companies are being forced to shift away from an “efficiency-first” and “just-in-time” model to “just-in-case” models. This shift represents a transition to geoeconomic fragmentation. In this new landscape, trade policy functions as a primary lever of economic warfare.
Tariffs today shape investment decisions and not just import pricing, harping upon relative costs of production, creating market certainty and changing profitability incentives for businesses. According to a recent study, 57% of US companies have postponed or cancelled major new capital infusions due to tariffs.
With a turmoil in the investment space manoeuvred by politics and tariffs, there is a growing need for India to capitalise on this opportunity of trade misalignment and undertake policies aligned with its vision of becoming a global trading powerhouse by 2030. With the Union Budget 2026, India should focus on making itself a highly competitive trade market with an increased priority on reliance and dependability for foreign capital infusion. It would take a multi-pronged approach to counter the tariff and supply chain instability. One of the avenues could be to align its tariff structures with those of ASEAN competitors like Vietnam which offers a better business environment.
A meaningful review of the ASEAN India Free Trade Agreement is overdue, which could be a significant step towards the overarching objective of stabilising India’s position over Asian competitors such as Vietnam. This would be to ensure that the free trade agreement is allied with today’s economic scenario. It will help reduce the widening trade deficit and would cultivate a more balanced market access.
A related but often underplayed reform is India’s evolving 100 product strategy. Instead of spreading policy attention thin across the tariff schedule, it would be better to focus on a set of products where it can realistically dominate global value chains. The products can be chosen based upon scale potential, supply chain depth, employment intensity, and export competitiveness. For each product, tariffs, incentives, quality controls, and trade facilitation are aligned end-to-end. This approach recognises that global manufacturing leadership is built product by product, not sector by sector.
Another pertinent stepping stone in India’s vision of enhancing global trade would be to correct the inverted duty structures (IDS) that penalise domestic value addition by increasing the cost of imported raw materials which makes domestic production of finished goods unviable. The elimination of the IDS would make domestic manufacturing more competitive, reducing input costs for exporters, aligning tariffs with global value chains and decreasing reliance on finished product imports. Recent corrections of IDS in the electronic sector are evidenced by the surge in high-tech exports which surpassed $50 billion by late 2025. However, sustaining this momentum requires the Budget to transition such initiatives into a more permanent high-value ecosystem.
Domestic incentive policies like production-linked incentives have also helped boost the manufacturing sector, seen in the recent growth in iPhone exports which crossed $50 billion by December 2025. A continued focus on such incentives through the 2026 Budget can help build a globally competitive, high-value manufacturing ecosystem in India. Further, the current Foreign Trade Policy has begun to show its age and calls for a fundamental reset with fresh incentives and modern trade tools.
A noteworthy and rather pressing requirement could be the introduction of a customs amnesty scheme that helps businesses to shed past trade deformations. The amnesty scheme could resolve over `1.5 lakh crore locked in more than 75,000 pending disputes at various judicial forums. It will reduce litigation, aligning itself with the “Make in India” movement and advancing the goal of ease of doing business. Further, Budget 2026 could explore the proposal of making advance rulings more robust, targeting the predicament of litigation costs in India.
In light of escalating trade tensions and the ongoing policy overhauls, the upcoming Union Budget could be a litmus test for the government to propagate reforms. The prevailing ad-hoc tariff-centric responses to geopolitical volatility are demonstrably insufficient to guarantee sustained economic security and domestic resilience. To be able to advocate India as a reliable trade alternative, there needs to be strategic advancement and rethinking of trade barriers, coupled with amendments in schemes within the import-export atmosphere.
With inputs from Harsh Shukla and Pratha Khanna, respectively counsel and associate, BMR Legal