India’s trade performance in 2025-26 shows strength amidst geopolitical risks, balancing growth, challenges, and evolving global market dynamics
India’s trade performance in 2025-26 presents a mixed picture, minimising the geopolitical risks but oozing positivity amidst growing tensions and supply shocks the unfolding situation imposes on all the stakeholders. For India, the Strait of Hormuz, a key waterway for the global oil and gas trade, besides fertilizers, remains closed with the United States slapping a fresh blockade on Iranian ports, portending hard times ahead, albeit our amiable relationship with the Persian Gulf countries sedulously built over the decades from the Nehru era!
Before a bird’s eye view is cast as to what is in store because of the unresolved conflict between Iran and the United States and the attendant turmoil, it is germane to get into granular details of the performance of both exports and imports, the latter having a preponderant share in the overall balance of trade! Including services exports which are shortly to surpass merchandise goods exports, the country’s total goods and services trade registered 5.4 percent growth to 1.84 trillion dollars in fiscal 2025-26. This may underscore the innate resilience of the export segment in wading into choppy waters of the tariff tantrums displayed by the country’s major trading partner the United States and the unforeseen eruption of conflict in the Middle East in March by the joint attack of the US-Israel on Iran and vice versa that seemed unstoppable and unceasing.
The deleterious development had a wider impact on trade balance which deteriorated. Commerce Ministry figures revealed that merchandise exports grew a tiny 0.9 percent overall last fiscal year, to 441.8 billion dollars, reflecting not just attenuated demand but also the attendant constraints in cargo movement across the high seas owing to the geopolitical perils. On the others hand, merchandise imports logged 7.5 percent growth to 775 billion dollars, reflecting most of the imported inputs traversed through other calm seaways in general and through China in particular as our import dependence on the latter had abruptly surged. This has caused the skyrocketing of the merchandise trade deficit to 333.2 billion dollars, a hefty growth of 17.5 percent.
India’s trade deficit with China zoomed, crossing the 100-billion-dollar mark to reach 112.1 billion dollars in 2025-26, reflecting our doughty dependence on the Middle Kingdom for various items, including inputs and intermediates, let alone finished products of electronic goods, pharmaceutical components, chemicals, battery components, machinery and rare earth minerals. Our growing reliance on China meant New Delhi needs to tread prudently by adroitly engaging the big brother across the Himalayas. Caught between placating both the US and China–the sworn foes to each other, the path is strewn with pitfalls, if the Indian leadership does not read the diplomatic nuances deftly and diligently. India peremptorily pulled out of the Regional Economic Cooperation Agreement (RECP) in November 2019 dreading that it would be deluged by cheap Chinese goods but now seven years down the line our import dependence on China had only intensified, depriving us of the duty-free entry both ways.
Together with services trade, India’s total exports grew a mere 4.2 percent to 860.1 billion, while total imports rose by 6.5 percent to 979.4 billion dollars, leaving the overall trade deficit to log a 26 percent growth to 119.3 billion. Going forward, both goods and services exports may get walloped by geopolitical uncertainties, supply disruptions, and lack of access to markets or services with the mode of delivery posing the greatest question mark. According to Ajay Srivatsava, founder, Global Trade Research Institute (GTRI), even as India’s services export is set to exceed merchandise exports, our well-developed services industry needs to guard against “AI-driven disruption to the information technology sector” which demands a concerted pan-India strategy to “upgrade India’s digital and business services capabilities” and competencies.
The policy makers need to do their bit to pay heed to sane suggestions emanating from elsewhere if the domestic counsels do not help them! The inter-governmental think tank of the rich industrial countries, the Organization for Economic Cooperation and Development (OECD) has, in its latest Foundations for Growth and Competitiveness, 2026, Report, noted pointblank that India’s participation in global value chains remains weak, circumscribing its ability to benefit fully from evolving global trade dynamics, including access to advanced technologies, knowledge spillovers, and diversified export markets. Its high tariffs and complex customs procedures continue to function as barriers to international trade, while restrictions on foreign services providers, such as equity caps and nationality requirements, constrain competition and limits India’s access to high-quality global services.
It is one thing to gloat over our superior services industry citing IT and software powers, but quite another thing to let equally efficient technocrats and technologies from abroad join the national bandwagon. Japan and China today stand tall in modernised manufacturing as well as services not because they were suspicious of the foreigners or foreign money (as Deng Xiaoping famously said money has no color) but they were open in courting, counting and eventually conquering them! OECD favors New Delhi to expand and deepen bilateral and regional trade pacts with a particular focus on services, besides relaxing or removing foreign equity caps and nationality requirements when not justified by public interest concerns. It is time we paid heed to history to court, count and conquer the broad outside world for a Viksit Bharath.
(G Srinivasan is a senior economic journalist based in New Delhi)
