Budget 2027: Manufacturers seek lower duties on raw materials to cut costs

Their budget proposals include tariff cuts and longer-term predictability for sectors such as aluminium, steel, textiles and chemicals, alongside faster GST refunds for textile processors.

New Delhi: Manufacturers are seeking lower import duties on raw materials and intermediate goods in the budget for 2027-28, arguing that high input costs are hurting domestic production and making Indian goods less competitive, three people familiar with the discussions said.

From aluminium and textiles to chemicals and export-oriented manufacturing, industry associations have flagged high and uneven duties on inputs as a cost burden for downstream producers, particularly micro, small and medium enterprises (MSMEs). In some cases, they have argued, imported finished products enjoy lower tariff rates than the raw materials used by domestic manufacturers.

The demands come as the finance ministry begins preparations for the next budget, which is scheduled to be presented on 1 February 2027. Industry bodies are meeting officials in the ministry and submitting their representations ahead of the exercise.

According to a schedule issued by the Department of Economic Affairs on 23 September, pre-budget meetings with ministries and departments began on 12 October and are scheduled to conclude on 13 November.

The government has already provided temporary relief to some sectors. It exempted cotton imports from customs duties from 1 June 2026. The exemption, initially scheduled to end on 31 October, was extended until 31 December to improve raw-material availability for the textile industry.

Zero basic customs duty

In a joint pre-budget representation to finance minister Nirmala Sitharaman, the Aluminium Extrusion Manufacturers Association of India (ALEMAI) and other industry bodies have sought a reduction in basic customs duty (BCD) on primary aluminium under tariff heading 7601 from 7.5% to zero. They argue that the existing tariff structure puts downstream manufacturers, particularly MSMEs that use aluminium as a key raw material, at a cost disadvantage.

Jitendra Chopra, president of ALEMAI, which represents more than 200 aluminium extrusion manufacturers across India, said the high cost of procuring raw materials had contributed to the closure of around 20 factories over the past three years, resulting in the loss of nearly 50,000 jobs.

"India has an installed aluminium extrusion capacity of 3 million tonnes, but the industry is currently operating at just 40% of capacity. Reducing customs duties on primary aluminium and aluminium scrap would lower input costs, improve capacity utilisation and help revive closed factories, creating employment opportunities," Chopra said.

He said the proposed duty rationalisation could generate an additional ₹4,400 crore in domestic taxable value addition and ₹792 crore in goods and services tax (GST) revenue at an illustrative rate of 18%. He said this would be equivalent to the customs revenue currently collected on primary aluminium imports.

The industry body PHDCCI has called for reducing the BCD on graphite electrodes from 7.5% to zero, citing their essential role in electric arc furnace steelmaking and the absence of a viable substitute for this application.

“A rationalised customs duty framework for inputs such as molybdenum, ferro-alloys, graphite electrodes and steel scrap, while supporting domestic recycling and resource efficiency, can improve cost competitiveness, strengthen downstream industries and facilitate the transition towards more efficient steel production,” said Anil Gupta, president, PHDCCI, during a pre-budget meeting.

Textile manufacturers

Textile manufacturers, meanwhile, have sought a more predictable customs duty regime for raw cotton and relief on key inputs used in the production of man-made fibres and yarn. These include caprolactam and nylon chips for nylon fibres and yarn, rayon-grade wood pulp for viscose fibre, and monoethylene glycol (MEG) and purified terephthalic acid (PTA) for polyester fibre and yarn.

A textile manufacturer, who did not wish to be named, said short-term exemptions made procurement planning difficult for spinning mills and garment manufacturers, which typically work with global order cycles of six to nine months.

"The government should, therefore, provide a predictable, multi-year customs duty framework for key raw materials, including targeted duty-free quotas for varieties of cotton that are not adequately available domestically," the manufacturer said.

In the chemicals sector, manufacturers are seeking duty relief on imported raw materials and intermediates such as methanol, acetic acid, phenol, toluene, acetone, ethylene dichloride (EDC) and vinyl chloride monomer (VCM). These chemicals are used across industries, including pharmaceuticals, paints, plastics, textiles and resins.

The government had provided temporary relief following disruptions caused by the West Asia conflict by exempting 40 specified petrochemical products, including methanol, acetic acid, phenol, toluene, vinyl chloride monomer, PVC and polypropylene, from basic customs duty between 2 April and 15 July 2026. The exemption, initially scheduled to end on 30 June, was extended by 15 days to ensure a smooth transition for industries dependent on these imports.

"The impact of the West Asia conflict is still being felt by the industry. We have urged the government to consider manufacturers' demands and provide further relief through concessions that would help make Indian products more competitive in global markets," said a manufacturer who did not wish to be named.

A senior government official said the finance ministry had received representations from various industry associations, but the final decision on accepting their suggestions rested with the government.

Multi-year framework

Industry body India SME Forum (ISF) has also called for a shift from short-term duty exemptions to a more predictable, multi-year tariff framework. The forum, which represents MSMEs, has more than 98,200 direct paid members and 1.23 million subscribers.

"The government has shown responsiveness to industry needs through interim duty relief for petrochemicals and raw cotton. Ahead of the Union Budget for 2027-28, it should build on this momentum by moving from short-term relief to a predictable, multi-year tariff framework," said Vinod Kumar, president of India SME Forum.

"This should include removing the 2.5% duty on secondary aluminium scrap, rationalising duties on essential chemical inputs and speeding up GST credit refunds for textile processors. Aligning input costs with long-term export cycles will give MSMEs the working capital and certainty to strengthen domestic manufacturing and compete with concessional FTA imports," Kumar added.

Queries sent to the finance ministry spokesperson remained unanswered.

About the Author

Dhirendra Kumar is a seasoned policy reporter with about 20 years of experience in deep, on-ground reporting across key economic and governance sectors. His work spans finance, public expenditure, disinvestment, public sector enterprises, textiles, trade, consumer affairs, and agriculture, with a strong focus on uncovering structural policy shifts and their real-world impact.<br><br>Kumar has been awarded the Chaudhary Charan Singh Award for Excellence in Journalism in Agricultural Research and Development, recognising his contribution to reporting on critical issues in the farm sector. He has also been a recipient of a fellowship in international trade from the National Press Foundation, which has further strengthened his coverage of global trade dynamics and their implications for India.<br><br>Kumar is known for breaking complex policy developments into clear, accessible stories. His reporting focuses on uncovering under-reported trends, explaining policy shifts, and helping readers stay informed about developments that shape India’s economic landscape.