Union Budget 2026: No influence of issues with U.S. in customs duty cuts, says Nirmala Sitharaman

The issue with the U.S. or the ongoing negotiations with that country on a trade deal did not have an impact on the Budget-making process or influence the decision to remove Customs tariffs on several key items, Finance Minister Nirmala Sitharaman said on Monday (February 2, 2026). 

Speaking a day after laying the report of the Sixteenth Finance Commission (16th FC) before Parliament, the Finance Minister added that the Centre has already made a start towards sharing cesses with the States, by using the proceeds of the Health se National Security Cess on public health, which is constitutionally a State subject. 

‘No US influence’

“The U.S. matter had no influence on us,” Ms. Sitharaman said at a press interaction, in response to a query from The Hindu. “For the last two years, on Customs, every Budget had announcements, and since last year I have openly been saying that Customs reforms is the next one and that I would bring that about during this Budget. As a continuation of that, this has happened.”

The issue gains relevance because, several of the Customs duty relaxations announced in Budget 2026 — such as those on electronics & components, semiconductors, medical devices, select chemicals, civil aviation parts, and clean energy inputs — had been part of the demands the U.S. team negotiating the trade deal had made on India.

The Minister added that Budget 2025 had brought about income tax reforms, while reforms of the Goods and Services Tax were carried out later than year, in September. 

“These were all a part of the larger scheme of things for the Indian citizens,” she said. “The Customs rate decisions were taken keeping the Indian citizens in mind.”

Making a start with States  

Ms. Sitharaman had said in her Budget speech that the Centre had accepted the recommendations of the 16th FC. 

In its report, the 16th FC had called for a “grand bargain” between the Centre and the States, wherein the Centre would include more cesses and surcharges in the pool of funds divisible with the States, and the States would agree to accept a smaller share of this larger pool. 

“We have accepted the recommendations of the Finance Commission, but on this particular question, it was a suggestion more than a recommendation,” Ms. Sitharaman said on Monday. “As it is, I think I have made a beginning when I committed that, even though it is a cess, a portion of the Public Health to National Security cess [on pan masala] would be spent on public health, which is a State subject.” 

“That cess, essentially levied on pan masala, is entirely the Centre’s,” she explained. “Despite that, we had on our own offered that a portion of it would go to the States.”

Great demand for capex loans

Ms. Sitharaman said that there was “great demand” among States for the Centre to increase the quantum of 50-year interest-free loans it was giving them under the Scheme for Special Assistance to States for Capital Investment (SASCI).

The Centre had in Budget 2026 increased the quantum of the loans under this scheme to ₹2 lakh crore for 2026-27 from Rs 1.5 lakh crore for 2025-26. 

“There is great demand for us to increase it,” she said. “State finance ministers demanded it in the pre-budget meeting I held with them. We increased it. But there is much more scope for the States to use it. Proposals from some States take too long to come, despite them wanting it. Their paperwork takes too long.”