What is the story about?
The year 2025 began with optimism for India’s external trade, driven by expectations of multiple bilateral agreements and expanding market access, particularly with the United States. However, the year unfolded against a turbulent global backdrop, marked by persistent geopolitical conflicts, shifting trade policies, and renewed protectionism from Washington.
The ongoing Russia-Ukraine war and the Israel-Gaza conflict disrupted global supply chains, while sanctions on Russia and heightened tensions in the Red Sea pushed up freight and insurance costs for exporters. Despite these headwinds, India’s exports demonstrated resilience. Total merchandise and services exports in FY25 touched an all-time high of $825.25 billion, registering a 6.05% year-on-year growth over FY24.
That momentum faced a significant challenge after US President Donald Trump announced sweeping tariff measures. In April, the US unveiled global tariffs with a baseline rate of 10% across imports, alongside reciprocal tariffs for select countries. India was hit with a 26% tariff, raising concerns across export-oriented sectors. While the reciprocal tariffs were paused for 90 days to allow space for negotiations, uncertainty loomed large.
The situation escalated in August when President Trump accused India of indirectly funding Russia’s war efforts by continuing imports of Russian oil. This led to a sharp hike in tariffs on Indian goods to 50%, prompting a strong rebuttal from New Delhi. Commerce Minister Piyush Goyal made it clear that India would not accept external pressure on its sovereign trade decisions, emphasising that sourcing choices were a matter for the global community, not unilateral diktats.
Even as India and the US continued talks on a bilateral trade agreement, progress remained slow and cautious. Indian negotiators engaged their American counterparts through multiple rounds of discussions, both virtual and in person, but a definitive breakthrough proved elusive.
Away from the US front, India made notable strides in diversifying its trade partnerships. In July, India signed a free trade agreement with the UK, though it is yet to be operationalised. In October, the FTA with the European Free Trade Association—comprising Switzerland, Norway, Iceland and Liechtenstein—came into force, opening new opportunities for Indian exporters. December saw the conclusion of negotiations for a Comprehensive Economic Partnership Agreement with Oman, granting India duty-free access to over 98% of Omani tariff lines, covering nearly all Indian exports to the country. More recently, India wrapped up negotiations for an FTA with New Zealand.
These agreements helped cushion the impact of global uncertainties. In the first half of FY26, India’s exports grew 5.86%, led by a 9.34% rise in services exports and a 2.90% increase in merchandise shipments. Electronics, engineering goods, pharmaceuticals, marine products and rice were key drivers, with Spain, Hong Kong, China and the UAE emerging as strong markets.
Exports to the US also rose 13% year-on-year during this period, largely due to front-loading by exporters seeking to ship goods before higher tariffs took effect. However, the impact of elevated US tariffs is now being felt, particularly in labour-intensive sectors such as textiles and leather, which are heavily dependent on the American market.
Also Read | India’s exports stay resilient, but industry flags 2026 risks from US tariffs | Q&A
The government responded with a mix of policy support. The Export Credit Guarantee Corporation upgraded country risk ratings for 24 nations, lowering insurance costs and reducing exposure to volatile markets. A weaker rupee provided some relief to exporters, while GST rate rationalisation offered support on the domestic front. The newly announced export promotion mission, aimed at incentivising market diversification, is also expected to play a role in the coming months.
As 2026 dawns, negotiations with the US remain ongoing, with periodic speculation about an imminent deal. Officials, however, continue to temper expectations. Commerce Secretary Rajesh Agrawal has underlined that talks with the US are complex and multi-layered, involving both a comprehensive bilateral trade agreement and a parallel framework deal to address reciprocal tariff challenges.
Beyond the US, India is actively negotiating with the European Union, the Eurasian Economic Union, MERCOSUR, Chile, Peru and the Maldives. Reviews are underway for the ASEAN FTA, while expanded agreements are being explored with Australia and the UAE. Terms of reference have also been finalised for potential deals with Israel, Qatar and the Gulf Cooperation Council.
While none of these agreements are likely to materialise overnight, each represents a step towards reducing India’s reliance on any single market. For Indian exporters, meaningful relief may come incrementally—but the biggest inflection point will hinge on whether New Delhi and Washington can eventually bridge differences and seal a trade pact acceptable to both sides.
The ongoing Russia-Ukraine war and the Israel-Gaza conflict disrupted global supply chains, while sanctions on Russia and heightened tensions in the Red Sea pushed up freight and insurance costs for exporters. Despite these headwinds, India’s exports demonstrated resilience. Total merchandise and services exports in FY25 touched an all-time high of $825.25 billion, registering a 6.05% year-on-year growth over FY24.
That momentum faced a significant challenge after US President Donald Trump announced sweeping tariff measures. In April, the US unveiled global tariffs with a baseline rate of 10% across imports, alongside reciprocal tariffs for select countries. India was hit with a 26% tariff, raising concerns across export-oriented sectors. While the reciprocal tariffs were paused for 90 days to allow space for negotiations, uncertainty loomed large.
The situation escalated in August when President Trump accused India of indirectly funding Russia’s war efforts by continuing imports of Russian oil. This led to a sharp hike in tariffs on Indian goods to 50%, prompting a strong rebuttal from New Delhi. Commerce Minister Piyush Goyal made it clear that India would not accept external pressure on its sovereign trade decisions, emphasising that sourcing choices were a matter for the global community, not unilateral diktats.
Even as India and the US continued talks on a bilateral trade agreement, progress remained slow and cautious. Indian negotiators engaged their American counterparts through multiple rounds of discussions, both virtual and in person, but a definitive breakthrough proved elusive.
Away from the US front, India made notable strides in diversifying its trade partnerships. In July, India signed a free trade agreement with the UK, though it is yet to be operationalised. In October, the FTA with the European Free Trade Association—comprising Switzerland, Norway, Iceland and Liechtenstein—came into force, opening new opportunities for Indian exporters. December saw the conclusion of negotiations for a Comprehensive Economic Partnership Agreement with Oman, granting India duty-free access to over 98% of Omani tariff lines, covering nearly all Indian exports to the country. More recently, India wrapped up negotiations for an FTA with New Zealand.
These agreements helped cushion the impact of global uncertainties. In the first half of FY26, India’s exports grew 5.86%, led by a 9.34% rise in services exports and a 2.90% increase in merchandise shipments. Electronics, engineering goods, pharmaceuticals, marine products and rice were key drivers, with Spain, Hong Kong, China and the UAE emerging as strong markets.
Exports to the US also rose 13% year-on-year during this period, largely due to front-loading by exporters seeking to ship goods before higher tariffs took effect. However, the impact of elevated US tariffs is now being felt, particularly in labour-intensive sectors such as textiles and leather, which are heavily dependent on the American market.
Also Read | India’s exports stay resilient, but industry flags 2026 risks from US tariffs | Q&A
The government responded with a mix of policy support. The Export Credit Guarantee Corporation upgraded country risk ratings for 24 nations, lowering insurance costs and reducing exposure to volatile markets. A weaker rupee provided some relief to exporters, while GST rate rationalisation offered support on the domestic front. The newly announced export promotion mission, aimed at incentivising market diversification, is also expected to play a role in the coming months.
As 2026 dawns, negotiations with the US remain ongoing, with periodic speculation about an imminent deal. Officials, however, continue to temper expectations. Commerce Secretary Rajesh Agrawal has underlined that talks with the US are complex and multi-layered, involving both a comprehensive bilateral trade agreement and a parallel framework deal to address reciprocal tariff challenges.
Beyond the US, India is actively negotiating with the European Union, the Eurasian Economic Union, MERCOSUR, Chile, Peru and the Maldives. Reviews are underway for the ASEAN FTA, while expanded agreements are being explored with Australia and the UAE. Terms of reference have also been finalised for potential deals with Israel, Qatar and the Gulf Cooperation Council.
While none of these agreements are likely to materialise overnight, each represents a step towards reducing India’s reliance on any single market. For Indian exporters, meaningful relief may come incrementally—but the biggest inflection point will hinge on whether New Delhi and Washington can eventually bridge differences and seal a trade pact acceptable to both sides.
