This audio provides an in-depth look into India's export performance as of mid-2025, navigating a landscape of rising global tariffs and geopolitical uncertainties.
India's merchandise exports reached record levels in FY2023–24, with the United States as its largest market, and saw a significant rebound in early FY2025–26. This growth has been primarily driven by a surge in electronics, engineering, and textiles shipments, partly due to front-loading ahead of anticipated U.S. tariffs.
Despite this overall positive trend, several sectors face specific vulnerabilities:
Electronics: While booming, this sector is heavily import-dependent (85–90% of components are imported), making it susceptible to global chip shortages or input tariffs. Potential U.S. tariffs on electronics imports could also dampen U.S. demand.
Engineering Goods: As India's largest export category, this sector is fairly resilient but relies on imported steel and machine tools, and could face price pressures if U.S. tit-for-tat tariffs flood Asian markets with surplus steel or chemicals.
Chemicals and Pharmaceuticals: These sectors have shown mixed trends and are vulnerable to global overcapacity, price swings, and potential U.S. tariffs or trade redirection.
Petroleum Products: This sector is vulnerable to oil market swings and geopolitical tensions, particularly in the Middle East, as a significant portion of India's crude and LNG transits the Strait of Hormuz.
Agriculture and Food Products: While generally resilient due to global food demand, this sector faces vulnerabilities from weather shocks or tariff barriers on staples by importing countries, such as a proposed U.S. duty on basmati rice.
Significant external challenges include:
Global Tariff Barriers: The U.S. announced "reciprocal tariffs" (26%) on imports from major partners, including India, which prompted Indian exporters to front-load shipments in April/May 20255. While India's overall economy is somewhat insulated due to a low export/GDP ratio and strong domestic market, specific industries like steel and chemicals could be hit by redirected global supply gluts.
EU's Carbon Border Adjustment Mechanism (CBAM): This new carbon levy on imports of steel, cement, aluminum, and fertilizers poses a substantial risk. India sends about 26.6% of its iron/steel/aluminum exports to the EU, and CBAM could dramatically increase costs for these sectors, potentially affecting up to $37 billion of exports. The UK plans a similar carbon tariff in 2027.
Geopolitical Disruptions: Rising Middle East conflicts pose risks of oil supply shocks. Attacks by Houthi rebels on Red Sea shipping have sharply increased costs and risks for Indian trade via the Suez Canal, forcing rerouting via the Cape of Good Hope, adding transit time and expense for sectors like textiles and machinery.
India's export markets are diverse, with the U.S. being the top destination, followed by the EU, Middle East, and growing markets in East Africa. However, India also faces a wide trade deficit with China, its largest import source, highlighting a dependency on Chinese components and raw materials.
To sustain export growth amidst these risks, the sources suggest a multi-pronged strategy:
Strengthen Trade Diplomacy: Fast-track bilateral and regional trade agreements (e.g., U.S.-India trade deal, EU-India FTA with CBAM carve-outs) and deepen ties with Africa and Latin America.
Enhance Competitiveness: Continue incentives like PLI schemes, support vulnerable industries with technology upgrades, and simplify domestic regulations.
Mitigate Geopolitical Risks: Build strategic energy reserves, diversify suppliers, expand alternate shipping routes, and invest in naval security.
Support Small Exporters: Provide technical assistance for market intelligence, FTA benefits, and trade remedy measures.
Invest in Long-term Strengths: Expand the services exports sector (IT/ITES, healthcare), promote R&D, and build infrastructure to improve trade facilitation.
This approach combines defensive measures like diversification and buffers with offensive tactics like market opening and production upgrading to navigate global headwinds and seize emerging opportunities
