Export Trends & Diversification

Export Trends & Diversification

Context

In 2025, India’s export landscape faced significant volatility due to the imposition of a 50% tariff by the United States, combining a baseline duty, reciprocal tariffs, and penalties related to trade with Russia. Despite this, India achieved a record export performance in the first half of FY 2025–26, driven by a strategic pivot toward electronics and a rapid diversification into alternative global markets.

About the News

Background:

The US, traditionally India’s largest trading partner, implemented a series of protectionist measures starting in April 2025. By August 27, 2025, most Indian exports faced a cumulative 50% tariff, severely impacting price competitiveness against rivals like Vietnam, Bangladesh, and Mexico.

Key Trends:

• Bifurcated Growth: While labor-intensive sectors saw sharp declines, technology-driven sectors reached historic highs.
• Market Re-orientation: Exporters successfully redirected shipments of tariff-hit goods (like marine products and textiles) to regions with growing demand, such as the EU, UAE, and East Asia.
• Record Performance: Total exports (merchandise and services) for April–November 2025 reached approximately $562 billion, showing resilience against global shocks.

Sectoral Impact: Winners and Losers

The US tariff regime created a clear divide between "traditional" and "modern" export sectors:

Trade Diversification & Resilience

India’s strategy to mitigate the "US Shock" involved a three-pronged approach:

1. Geographic Diversification:

Exporters leveraged "trade like water" (finding its own course) by tapping into non-traditional markets.

• China & Hong Kong: Became vital outlets for marine products and processed minerals.
• European Union: Spain and Belgium recorded surges in imports from India (Spain up ~40%).
• West Asia: Deepening ties via the UAE-CEPA and upcoming pacts with Oman.

2. Product Value-Addition:

Under the Production Linked Incentive (PLI) schemes, India transitioned from an exporter of raw materials to high-value finished goods, particularly in electronics and engineering.

3. Policy Interventions:

• Export Promotion Mission: A ₹25,060 crore initiative unveiled in late 2025 to streamline compliance and provide credit guarantees for MSMEs.
• FTA Momentum: Fast-tracking agreements with the UK, Oman, and EFTA to secure duty-free access to diverse markets.

Challenges

• High Logistics Costs: Despite growth, Indian exporters face higher freight costs and logistical hurdles compared to competitors in Southeast Asia.
• Non-Tariff Barriers: Emerging "Green Trade" policies in the EU (like carbon taxes) pose a new threat to Indian manufacturing.
• Currency Volatility: The Rupee's fluctuations against the Dollar impacted the margins of small-scale exporters.

Way Forward

• Deepening FTAs: India must conclude negotiations with the UK and EU to balance the loss of market share in the US.
• Supply Chain Integration: Further investment in semiconductor and component manufacturing to maintain the lead in electronics.
• MSME Support: Ensuring that the Export Promotion Mission reaches smaller clusters in the gems, jewellery, and textile sectors.

Conclusion

The "Year of Tariffs" (2025) served as a stress test for the Indian economy. While US protectionism hurt traditional sectors, it accelerated India’s evolution into a global electronics hub and forced a necessary diversification of its trade partners, ultimately creating a more resilient and modern export ecosystem for 2026.