Introduction

Custom duty has been a pivotal aspect of international trade policies for a prolonged time. These duties are the taxes imposed on goods as they move across international borders, hence serving dyadic purposes, generating revenue for the government and safeguarding domestic industries against global competition. The government’s approach towards custom duties has changed significantly in India for a self-reliant economy. The Union Budget of 2024-25 introduced the retrenchment of custom duties across assorted sectors, which revitalized domestic industries and fostered innovations. However, these changes came with their share of advantages and challenges, especially for startups.

Key Beneficiaries of Duty Cuts

The custom duty’s role in India’s economic framework cannot be overstated; this is because of the meticulous regulation of imports and exports, which influence pricing, production and competitiveness across industries. In the 2024 budget, customs duties were judiciously reduced on key inputs like precious metals, electronic components, critical minerals, aquaculture feed, and materials for solar energy. The government’s intention here was abundantly clear in order to bolster domestic manufacturing and enhance export potential, they had to make essential raw materials and components more affordable. However, this presents a double-edged sword for startups, proffering both opportunities and obstacles.

The electronic industry is one of the foremost beneficiaries of these reductions in custom duties. India’s burgeoning tech startups, such as boAt and Noise, stand to gain significantly from reduced duties on printed circuit board assemblies (PCBAs) and mobile phone chargers. The government aims to incentivize local production and to diminish dependency on imports by lowering the costs of these components. Startups like boAt, which specializes in consumer electronics, this move of government may lead them to get augmented profit margins and the ability to offer competitive pricing in global markets simultaneously. Similarly, a reduction in costs could enable Noise, a trailblazer in wearables, to diversify its product portfolio and channel investments into groundbreaking innovation.

In the renewable energy sector, startups like Ola Electric and Log9 Materials are primed to capitalize from duty exemptions on lithium, cobalt, and nickel. These minerals are quintessential for manufacturing EV batteries and energy storage systems. With the reduction in input costs, Ola Electric may scale its EV production to make sustainable transportation more attainable to its consumers. Conversely, Log9 Materials, a pioneer in advanced battery technology, can harness these cost reductions to fortify its R&D efforts initiatives and expedite the development of cutting-edge products. This aligns with India’s ambition for green energy and a reduced carbon footprint.

The amendments in the custom duties have permeated the marine industry, particularly with the reduction in aquaculture feed, which could be a windfall for startups like Aqua Connect and Capital Fresh operating in the seafood export domain. Aqua Connect provides a platform for fish and shrimp farmers to get access to new technology solutions, and this alleviation in duties would help reduce operational costs, thereby increasing profitability. Whereas Capital Fresh, which focuses on seafood supply chain solutions, may utilize the cost advantages in order to improve its competition in export in the global market, particularly in the Western economies.

Challenges for Startups

These custom duties also usher challenges for startups despite the benefits. The escalation of potential competition in the market is one of the major concerns faced. Established players with formidable financial resources may strategically capitalize on cost reduction to dominate larger market shares, leaving smaller startups grappling with sustaining their foothold in an increasingly competitive landscape. For instance, while boAt and Noise might gain from lower costs, they may also face heightened competition from global giants like Apple and Samsung, which could use the same duty reductions to offer more competitive pricing in India.

Moreover, the reliance on imports could exacerbate rather than abate. Startups in sectors like EVs or electronics may find themselves increasingly reliant on inexpensive import components, which might stifle the development of indigenous supply chains. This reliance may pose long-term risks, particularly if a global supply chain disruption occurs, as starkly evidenced during the COVID-19 pandemic.

Another challenge is the mounting pressure on local manufacturers. Reduction in customs duties may precipitate an influx of more affordable imported goods, which would potentially jeopardize domestic production and erode the competitiveness of homegrown industries. Startups that rely on local suppliers may find their partners struggling to compete with international counterparts. For example, a startup producing solar panels using locally sourced components might face difficulties if imported panels become significantly cheaper due to duty cuts.

A real-life example from 2024 illustrates the complexities of these dynamics. Startups in the textiles sector, such as FabIndia, have had to navigate the dual pressures of reduced costs for imported raw materials like goose and duck down filling and increased competition from international brands. While these cost reductions allow FabIndia to manufacture premium-quality products, they simultaneously create opportunities for foreign brands to penetrate the Indian market enjoying similar advantages and intensifying the competitive landscape.

Navigating the Legal and Regulatory Landscape

In the legal and regulatory domain, the amendments to customs duties demand a meticulous balancing act. To adeptly navigate the intricacies of custom regulations, startups must ensure stringent compliance with the revised duty structures. Any lapses in documentation or misclassification may result in penalties, thereby exacerbating the operational burden. To avert destabilization of the domestic markets, the government must safeguard against any potential dumping practices by foreign manufacturers, therefore strong anti-dumping measures are indispensable to protect startups and uphold fair competition.

Despite having these challenges, this reduction in custom duties empowers startups to innovate and thrive. Startups may channel resources in R&D, broaden their product portfolios and explore untapped markets by capitalizing on these duty cuts. To provide additional support for startups, aiming to scale their operation, initiatives like Production-Linked Incentive (PLI) scheme may serve as a synergistic complement to these duty reductions.

Conclusion

Eventually, the impact of custom duty reduction on startups is contingent upon their ability to adapt and capitalize on the changing landscape. For entrepreneurs, this represents an unparalleled opportunity to innovate, collaborate and build resilient supply chains with the use of these advantages. Startups may position themselves as a key-players in India’s journey toward economic growth and self-sufficiency by striking a balance between leveraging cost advantages and fostering self-reliance.

Therefore, the custom duties cuts which were introduced in 2024, present a confluence of opportunities and challenges for startups in India. While the government reduced the costs and bolstered global competitiveness, these measures have concurrently ushered in intensified competition, regulatory complexities and the peril of overdependence on imports. By navigating these challenges strategically, startups can not only survive but thrive, contributing to India’s vision of becoming a global economic powerhouse.

References:

  1. ‘Complete List of Custom Duty in India’ (Credlix, 4 September 2024)
  2. ‘Corporate Tax Rate Applicable for AY 2024-25’ (TaxGuru, 22 January 2025) 
  3. ‘Top 10 Best Clean Energy Startups in India for 2025’ (Inventive, 18 December 2024)
  4. ‘FM announces changes in custom duty in Union Budget 2024’ (Economic Times, 23 July 2024)
  5. ‘Impact of Custom Duties Reduction on Local Manufactures’ (2024)
  6. Nina Sheridan ‘Fabindia Marketing Strategy 2025: A case Study’(Latterly.org)

Gaurav Gupta is the Founder and Managing Partner at Bridge Counsels & Dakshita Singh, is a final- year student of BA LLB at Guru Gobind Singh Indraprastha University, Delhi, and interned at Bridge Counsels.