India's Trade Shines Amid Global Turmoil
India's trade performed strongly in FY2025-26, showing resilience against global tariff hikes and geopolitical tensions. Despite these pressures, the country's trade flows and supply chains remained remarkably steady from April to February 2025-26, notes industry body ASSOCHAM. This stability comes from active government measures and quick responses by Indian businesses. The U.S. stayed India's top export market, with shipments reaching $79.3 billion during these eleven months, holding about 19.7%. Trade ties with the UAE, China, the Netherlands, and the UK were also strong. Hong Kong notably joined the top ten export destinations, showing a diverse approach that helps absorb global shocks.
Government Policies Boost Exports
The Indian government's efforts to support trade have been vital. Programs like the extension of the RoDTEP scheme and the Bharat Audyogik Vikas Yojna (BHAVYA), along with relief under advance authorisation and EPCG schemes, have given exporters crucial backing. These policies aim to offset taxes, boost competitiveness, and improve market access, helping Indian businesses succeed despite global uncertainty. The Export Promotion Mission (EPM), with significant funding planned from FY2025-26 to FY2030-31, will also support trade finance and logistics, especially for small and medium-sized businesses (MSMEs). This backing is important as global trade volume growth is expected to slow to 2.2% in 2026, down from 3.8% in 2025.
Global Challenges and India's Growth
India's trade resilience is playing out amidst major global changes. World trade saw stronger-than-expected growth of 3.8% in 2025, partly due to shipments made before new U.S. tariffs took effect. Growth is forecast to slow to 2.2% in 2026. Emerging economies like India are doing well, with India's GDP growth predicted to far exceed regional averages, hitting 6.5% to 7.4% for FY2025-26 and FY2026-27. Strong domestic economic activity provides a solid base for exports. However, the global scene remains volatile with ongoing geopolitical tensions, especially in the Middle East, and continued tariffs from countries like the U.S. These issues cause supply chain delays and price swings, affecting trade globally. Diversifying products and markets has been key for India, helping it withstand shocks like the significant U.S. tariffs imposed in 2025.
China Trade Deficit Swells Sharply
A major challenge to India's trade strength is the sharp increase in its trade deficit with China. From April to February FY2025-26, India imported $119.6 billion from China while exporting only $17.5 billion, creating a huge deficit of $102.1 billion. This imbalance shows India's increasing need for Chinese industrial goods, like electronics, machinery, and pharma ingredients, indicating domestic production may not match cheaper imports. This reliance is risky, especially as trade is increasingly used politically and geopolitical ties can change quickly. The full-year deficit with China is projected to hit $111.4 billion, requiring strategic policies to fix this imbalance.
Underlying Risks and Vulnerabilities
Beyond its overall strength, India's trade sector faces structural weaknesses. The growing deficit with China, as noted, could harm domestic industry and create economic dependence. Additionally, geopolitical tensions, like the Middle East conflict, are raising oil prices, which can strain government finances and worsen the trade deficit. This is partly offset by a surplus in services trade. Currency swings, high shipping costs, and tougher global financing conditions, particularly for small and medium-sized businesses (MSMEs), remain ongoing challenges. For export growth to continue, India must manage these risks by adapting, securing better market access through new trade deals, and actively addressing trade imbalances.
Outlook for India's Trade
The outlook for India's trade is cautiously positive, supported by strong domestic economic fundamentals and government strategies. S&P Global Ratings projects India's GDP growth at 7.1% for FY27, while Crisil forecasts annual export growth of 13% until 2030, driven by Free Trade Agreements (FTAs). Goldman Sachs expects India's GDP to grow by 6.9% in 2026. A recent tariff reduction with the U.S., lowering rates from 25% to 18%, should give the economy a boost and reduce trade uncertainty. ASSOCHAM predicts total merchandise exports for FY2025-26 will reach $440 billion to $450 billion, indicating ongoing expansion. This positive trend relies on continued policy support, exploring new markets, and effectively managing global trade complexities and ongoing trade imbalances.