Finance Ministry notifies temporary relief to support units hit by U.S. tariffs and global trade headwinds

In a move aimed at stabilizing export-oriented industries amid rising global trade tensions, the Ministry of Finance has notified Customs duty relief on goods manufactured in Special Economic Zones (SEZs) and sold in the Domestic Tariff Area (DTA), signaling a calibrated policy shift to support stressed exporters without distorting domestic markets.

The notification, effective from April 1, 2026 to March 31, 2027, introduces reduced duty rates ranging between 5 per cent and 12.5 per cent across sectors. For key industrial inputs such as chemicals and fertilisers, duties have been trimmed further to 6.5 per cent, down from 7.5 per cent, offering targeted cost relief to downstream industries.

Strategic Cushion for Export-Driven SEZs

The measure—first announced in the Union Budget FY27—comes at a time when SEZ units are grappling with declining competitiveness following steep tariff hikes imposed by the United States. With over one-third of India’s SEZ exports directed to the U.S., the impact of these trade barriers has been significant, leading to underutilized capacities and margin compression across sectors.

By allowing limited domestic sales at concessional duty rates, the government is effectively creating a buffer mechanism—enabling SEZ manufacturers to partially offset export losses through the domestic market.

Guardrails to Protect Domestic Industry

To maintain a level playing field, the policy includes strict safeguards. Domestic sales by SEZ units will be capped at a prescribed proportion of their export turnover, ensuring that DTA manufacturers are not undercut by duty-advantaged goods.

Additionally, the relief is available only to units that commenced production on or before March 31, 2025—clearly positioning the measure as a support mechanism for existing players rather than an incentive for new entrants.

Balancing Trade Pressures with Market Stability

The notification reflects a broader policy recalibration as India navigates an increasingly volatile global trade environment. While SEZs have traditionally been engines of export growth, their heavy reliance on a few key markets—particularly the U.S.—has exposed them to external shocks.

Industry data indicates that capacity utilization in SEZs has come under pressure in recent months, underscoring the urgency of intervention. The duty relief, though temporary, is expected to improve liquidity, support production continuity, and help firms better manage inventory in the face of uncertain export demand.

A Measured, Time-Bound Intervention

By limiting the relief to a one-year window, the government appears to be striking a balance between immediate industry support and long-term market discipline. The move also signals policy flexibility—acknowledging that global trade disruptions require adaptive responses.

As geopolitical tensions and protectionist measures continue to reshape global supply chains, India’s approach to SEZ policy may increasingly evolve from pure export promotion to resilience-building.

For now, the message is clear: while exports remain the priority, domestic market access—under controlled conditions—can serve as a critical stabilizer in times of global uncertainty.