Risks for Indian exporters are rising from many fronts. In Europe, new carbon and deforestation rules are increasing compliance costs for Indian steel, aluminium and farm-linked exports. China’s dominance in electronics, batteries and critical minerals has pushed India’s trade deficit beyond USD 115 billion, exposing weak manufacturing depth. Even relatively safe markets are turning inward Mexico has imposed tariffs of up to 50 per cent. At the same time, currency volatility, high global interest rates and heavier compliance burdens are squeezing margins, especially for MSMEs.
The US – Trade Disruptor
Washington uses tariffs, sanctions and energy policy as geopolitical tools. India has been hit hard by this. Trade talks continue at slow pace as Washington demands India open its core farm sector to heavily subsidised US produce and genetically modified crops, which New Delhi sees as a threat to food security and small farmers. Even a trade deal with the US offers no guarantee that India will be spared future tariffs.
The impact is clear in the trade data. Indian exports to the US fell 21.6 per cent between May and December 2025, hitting labour-intensive sectors such as apparel, seafood and gems and jewellery. Yet exports to the rest of the world rose 5.5 per cent, indicating gradual diversification away from a single market. Total exports were about USD 825 billion in FY25 and are expected to reach around USD 850 billion in FY26, with services likely to cross USD 400 billion offsetting weak goods exports.
Are FTA a Strategic Shield
To reduce US related risks, India has turned strongly toward free trade agreements (FTA). Its latest deal with the European Union is the ninth FTA in four years, following agreements with Mauritius, the UAE, Australia, EFTA, the UK, Oman, New Zealand and the Indo-Pacific Economic Framework countries, which also includes the US.
The India–EU FTA, concluded after 18 years, gives India preferential access to a large, stable market. Eliminating EU tariffs of 8–20 per cent on textiles, garments and shoes can boost exports, jobs and value chains, while services commitments reduce dependence on the US.
Still, FTAs alone are not enough. In a world where power often outweighs rules, India’s trade success will depend on competitiveness at home – stronger manufacturing, lower logistics costs, faster and predictable customs, and higher-value services. If pursued with speed and discipline, these reforms can turn today’s external shocks into an opportunity. Resilience, not rhetoric, will shape India’s trade future.
