Fieo’s Union Budget 2026 Recommendations By Mr. S C Ralhan, President, Fieo

Proposal: The Budget should urgently address the problem of inverted customs duty structures, where import duties on raw materials, components, or intermediates are higher than those on finished goods. FIEO recommends rationalization and reduction of import duties on key inputs used by export-oriented industries so that input costs are aligned with finished product duties.

Justification: An inverted duty structure significantly erodes the cost competitiveness of Indian exporters and locks up scarce working capital through accumulated input tax credits. Several sectors continue to face this anomaly. For instance, synthetic yarns and fibres attract higher customs duties than finished fabrics and garments, adversely impacting the textile and apparel value chain. Similarly, electronic components such as PCBs, connectors, and sub-assemblies face higher duties compared to imported finished electronic products, discouraging domestic value addition. In the chemical and plastics sector, basic raw chemicals and polymers often attract higher duties than downstream finished products, undermining Indian manufacturers. The leather and footwear sector also faces higher duties on inputs like components and accessories vis-à-vis imported finished footwear. Correcting these anomalies by lowering or restructuring duties on raw materials will reduce production costs, ease working capital pressures, encourage domestic manufacturing, and strengthen India’s export competitiveness.

Proposal: The Budget should provide targeted policy and fiscal support for the development of Indian global-scale shipping lines, including access to long-term finance, viability gap funding, and supportive regulatory measures.

Justification: India’s heavy dependence on foreign shipping lines exposes exporters to high freight costs, supply disruptions, and volatility in global shipping rates. The absence of strong Indian shipping carriers weakens India’s trade resilience and bargaining power. Developing Indian shipping lines can significantly reduce freight costs, improve reliability, and ensure strategic control over logistics. It is estimated that India could save USD 40–50 billion annually in freight outflows through a robust domestic shipping ecosystem. This would directly enhance export competitiveness and support India’s long-term trade and logistics security.

Proposal: FIEO recommends restoring the 200-250% weighted tax deduction for in-house R&D expenditure under Section 35(2AB) of the Income Tax Act and broadening its applicability beyond companies to include LLPs, partnership firms, and proprietorships, especially MSMEs.

Justification: Historically, the 200% weighted deduction significantly incentivized private sector investment in R&D and innovation. Its gradual dilution has weakened India’s innovation ecosystem at a time when global competition is intensifying. Currently, 35 out of 38 OECD countries provide tax incentives for R&D, putting Indian exporters at a disadvantage. Giving the 200% deduction would encourage innovation linked to productivity, product development, and export competitiveness. Extending eligibility to non-corporate entities is critical, as MSMEs form the backbone of India’s export ecosystem and often lack the financial capacity to invest in R&D without fiscal support.

Proposal: The Budget should provide a 200% tax deduction for expenditure incurred on overseas marketing, branding, trade fairs, buyer meets, and promotional activities, particularly benefiting MSME exporters.

Justification: India’s goods and services remain inadequately showcased in global markets compared to competing exporting nations. High marketing and branding costs discourage exporters—especially MSMEs—from aggressively pursuing new markets. Enhanced tax deductions would incentivize exporters to invest in international marketing while reducing the effective fiscal burden. This measure would lead to stronger brand visibility, market diversification, higher exports, and improved long-term trade sustainability.

Proposal: FIEO proposes extending the 15% concessional corporate tax rate under Section 115BAB for new domestic manufacturing units for at least another five years beyond the earlier cut-off date of 31 March, 2024.

Justification: At a time when India is competing aggressively for global manufacturing investments and supply-chain relocation, the lapse of this concessional tax regime reduces India’s attractiveness as a manufacturing destination. Extending the scheme would provide policy certainty, improve post-tax returns on investment, and reinforce the Government’s Make in India and export-led growth objectives. This measure would also complement PLI schemes by creating a coherent and competitive fiscal framework, encouraging fresh capital investment, employment generation, and higher value-added manufacturing in India.