Tariffs are the new normal - can Budget 2026 build a shield?

Tariffs are a constant now. So planning for them should be consistent as well.

Annoying? Definitely.

Surprising? Not anymore.

The pressure is already visible. Between April and December 2025, India’s trade deficit widened to nearly $97 billion, up from about $88 billion in the same time last year.

But here’s the real question: beyond signing trade agreements and market-hopping, what more can Budget 2026 do to make India genuinely tariff-resistant?

What can we realistically expect from Budget 2026?

Labour-intensive sectors where jobs are on the line

Exports support over 40 million jobs in India, many in labour-intensive sectors where price competitiveness is critical. Rising global tariffs are pushing up landed costs, squeezing export orders and putting jobs at risk.

Budget 2026 can offer targeted support to sectors like textiles, and gems & jewellery to offset tariff pressures and protect competitiveness.

Here’s what that looks like, sector by sector.

Gems & jewellery

If any sector shows how brutally tariffs can bite, it’s gems and jewellery.

Between April and November 2025, India’s gems and jewellery exports to the USA fell 43.8%, from $6.29 billion to $3.54 billion.

Despite cutting and polishing nearly 90% of the world’s rough diamonds, India still lacks a global trading hub comparable to Antwerp or Dubai. The industry argues that the current 4% Safe Harbour tax is too high and discourages international trading activity.

To fix this, the Gems and Jewellery Export Promotion Council (GJEPC) has recommended:

• Foreign mining companies operating in Special Notified Zones (designated areas with relaxed rules to attract global players) need a simpler and more predictable tax setup;
• a Belgium-style Carat Tax (where diamonds are taxed based on their weight rather than profits); something that could help India emerge as a global centre for diamond trading and price discovery

There’s also a duty problem. Under current rules, semi-processed diamonds imported from mining countries are treated as cut and polished stones, attracting a 5% Basic Customs Duty (BCD). This erodes margins just as global demand weakens.

A similar issue exists in coloured gemstones, where export restrictions in producing countries force Indian jewellers to import finished stones, again attracting a 5% duty. This weakens India’s competitiveness against rivals like Thailand and China.

GJEPC has proposed:

• Reducing duties on cut and polished diamonds and gemstones to 2.5%
• Removing duties on rough gemstones altogether

The aim is to protect manufacturing, employment, and export competitiveness in a sector already under pressure.

Textiles & home furnishings

In the home textiles sector, exporters prefer stable and predictable government policies over new exciting schemes. They need reliability to stay competitive on price in global markets.

Vikas Singh Chauhan from the Home Textile Exporters’ Welfare Association (HEWA) says:

• The RoSCTL scheme (which refunds certain state and central taxes/levies on exports) is very important. It should continue at least until 2030 to help keep prices competitive abroad.
• There's a problem in the RoDTEP scheme (another refund scheme for duties and taxes on exports): finished products like towel rolls get only about 1% rebate, while raw materials like yarn or cotton get much higher rates. This unfair difference hurts profits for exporters who make the final products.

Making MSMEs tariff-ready, not tariff-vulnerable

If there’s one group that feels tariffs, compliance costs, and climate-linked barriers first, it’s MSMEs.

India has already rolled out one buffer against tariff shocks: the Export Promotion Mission (EPM) in November 2025. It comes with a ₹25,060 crore outlay and includes an interest subvention scheme, which simply means exporters can borrow at lower interest rates.

That’s a big deal for MSMEs. After all, a lot of engineering exporters in India are MSMEs.

But here’s where the gap shows up.

According to Pankaj Chadha, Chairman of EEPC India, the interest subvention scheme doesn’t explicitly cover all MSMEs, especially those exporting basic steel products under Chapter 72 of the customs tariff (think steel sheets, bars and coils).

“The omission of Chapter 72 from the current coverage should be rectified, since it has a significant adverse impact on a large number of downstream engineering exporters who are predominantly MSMEs,” Chadha says.

Why does this matter? Because steel exporters sit right at the start of the engineering supply chain. If cheaper credit doesn’t reach them, costs rise at the source. And those higher costs then travel downstream; squeezing margins for MSMEs that make machines, tools, auto parts and equipment.

Do you remember when we discussed that MSMes are likely to be hit the hardest due to the Carbon Border Adjustment Mechanism (CBAM) problem?

Not because they pollute more, but because they have fewer resources to invest in clean transitions. Chadha argues that Budget 2026 must step in here too.

Summing it up

Budget 2026 won't stop tariffs from coming, but it can decide how hard they hit. By backing the sectors that employ millions, giving MSMEs real tools to go green and stay competitive, and doubling down on defence manufacturing that tariffs can't easily touch, India turns its domestic strength into a genuine buffer.

The test is simple: when the next trade shock lands, will exporters be scrambling; or standing firm? That's the real verdict this Budget will earn.