Indian industry is pushing for a comprehensive overhaul of the customs framework in Budget 2026, with leading experts calling for transformative changes that could unlock significant value for businesses and improve India's trade competitiveness. The proposed reforms center on three critical areas: duty structure rationalization, digital transformation, and dispute resolution mechanisms.

Duty Slab Rationalization: Simplifying Complex Structure

According to Pratik Jain, Partner at Price Waterhouse & Co, the customs duty structure requires fundamental restructuring to support domestic manufacturing. The current system spans eight different duty slabs, creating complexity for businesses and trade facilitation.

Jain describes this potential transformation as a "GST 2.0 moment" for customs, emphasizing simplification over incremental adjustments. The restructured approach would create clearer differentiation between product categories, incentivizing domestic value addition and manufacturing capabilities.

The reform also includes reviewing existing exemptions, with the government expected to retain those supporting priority sectors like lithium-ion battery manufacturing while eliminating exemptions that no longer serve strategic objectives. Several exemptions withdrawn in the previous year's Budget set the precedent for this streamlined approach.

Digital Transformation: Bridging the Technology Gap

While Indian customs has made progress in recent years, significant gaps remain compared to the GST system's digital integration. Jain emphasizes that GST operates with nearly complete digitization, from registration through return filing, and integrates seamlessly with company ERP systems.

The digitization priorities include:

• Manufacturing and Other Operations in Warehouse Regulations (MOOWR): Critical for large importers requiring duty deferment benefits
• Authorised Economic Operator (AEO) Programme: Essential for manufacturers seeking procedural relaxations
• End-to-end Process Integration: Eliminating manual processes that create compliance friction

Industry expects Budget 2026 to establish a phased roadmap for customs digitization, providing predictability and demonstrating long-term commitment to technological transformation rather than attempting overnight changes.

Dispute Resolution: Addressing ₹40,000 Crore Legacy Challenge

A comprehensive amnesty scheme represents the third pillar of the proposed reforms, addressing a substantial backlog of legacy customs disputes. Based on data from recent years, the cumulative value of stuck litigation exceeds ₹40,000 crore, creating significant working capital constraints for businesses.

Jain notes that these disputes create uncertainty and tie up crucial business resources. A settlement mechanism similar to previous GST amnesty measures could provide immediate relief and improve corporate cash flows, allowing companies to focus on growth rather than prolonged litigation.

Strategic Implications for Indian Manufacturing

The combined impact of these reforms could significantly enhance India's manufacturing competitiveness and ease-of-doing-business rankings. As global supply chains undergo restructuring due to geopolitical factors and evolving free trade agreements, streamlined customs processes become increasingly critical for maintaining competitive advantage.

Finance Minister Nirmala Sitharaman has already identified customs overhaul as a priority area, raising expectations that Budget 2026 will deliver substantive changes rather than incremental modifications. The proposed reforms align with India's broader economic growth objectives and could serve as a powerful enabler for manufacturing expansion and trade facilitation.