Economic Survey proposes national input cost reduction strategy, calls high costs a hidden tax

Manufacturing

• Survey suggests national strategy to cut input costs for industry growth
• High input costs seen as a hidden tax, hurting manufacturing and exports
• Survey urges rule-based, economy-wide reforms to boost competitiveness

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The Economic Survey 2025-26 has proposed a national input cost reduction strategy, saying lowering the cost of energy, logistics, raw materials, compliance and others is as critical to industrial growth as building physical infrastructure.

The survey framed input costs as a form of “competitiveness infrastructure”, suggesting that elevated costs across supply chains act like a hidden tax on manufacturing, exports and job creation. It argued that for India to emerge as a globally competitive manufacturing hub, competitiveness must be both achievable and affordable across sectors, not limited to a few protected industries.

It cautioned that traditional industrial strategies centred on protecting final goods can backfire if input costs remain high. According to the survey, protecting downstream products while leaving raw material, energy and logistics costs elevated makes it harder for firms to scale production or compete internationally. Affordable and reliable inputs, it notes, are foundational to sustaining industrial growth and export competitiveness.

The survey flagged tariff inversion as a key risk. When duties on intermediate goods exceed those on finished products, domestic producers face higher costs than importers of finished goods, it said. This can encourage assembly-led imports instead of deeper domestic value addition, weakening manufacturing depth and reducing incentives for private investment. Correcting such distortions, the survey said, is a structural reform with economy-wide implications rather than a marginal trade policy adjustment.

The survey emphasised that input cost reform should be rule-based and economy-wide rather than sector-specific. Inputs widely used across industries should not be treated as revenue sources or protection instruments once domestic capacity is established. Protecting such inputs may benefit a narrow set of producers but raises costs for downstream sectors, weakening export competitiveness and job creation.

The survey also linked input costs directly to private investment behaviour. Thin margins in export-oriented manufacturing, high sensitivity among MSMEs and limited incentives to invest in technology upgrades make input costs a binding constraint on industrial expansion. In this context, lowering input costs can simultaneously strengthen multiple value chains and improve overall industrial productivity.

By treating input cost efficiency as a core policy priority, alongside infrastructure, logistics and regulatory simplification, the survey signals a shift toward a horizontal industrial strategy aimed at strengthening India’s position in global manufacturing and export markets.