India's merchandise exports to the United States could decline by around 5 percent over the next five months as uncertainty looms over America’s tariff policy, former Commerce Secretary G.K. Pillai has warned.
While services exports are expected to remain buoyant, he cautioned that the volatile tariff environment may compel the Indian industry to scale back production and reroute trade through alternative markets.
“The uncertainty over the tariff rates will be a negative factor for the next five months and will result in a decline of merchandise exports by around 5 percent,” Pillai told Moneycontrol. “However, the service exports will show a rising trend of around 6 percent.”
The remarks come at a time when India and the US are discussing a bilateral trade agreement. According to the latest government data, the country’s merchandise trade deficit rose to $21.54 billion in March 2025, compared to $14.05 billion in February. While goods exports stood steady at $41.97 billion, a surge in oil imports to $19 billion and gold imports to $4.4 billion widened the trade gap.
“If the overall decline in merchandise exports is less than 5 percent, I think India would have done well in 2026,” he remarked while urging policymakers to stay agile. “The mandarins in the Commerce Ministry will have to play it very nimbly as different scenarios will evolve over the next five months.”
India Inc cautious
Pillai said that the potential imposition of US reciprocal tariffs, along with a 90-day pause, could lead Indian businesses to act cautiously. "This will cause Indian industry to play safe and keep production capacities at muted levels,” he said, adding that “there is likely to be a diversion of trade through different countries to avoid higher tariffs.”
Despite short-term challenges, India registered a record high of $820.93 billion in overall exports in FY25, supported by a 12 percent growth in services exports, which reached $383.51 billion. Merchandise exports remained flat at $437.42 billion while goods imports rose 6 percent to $720.74 billion.
Pillai said India must lower tariffs across sectors to stay competitive globally. “India needs to lower tariffs to keep the various sectors competitive,” he said, underscoring the need for strategic recalibration amid shifting trade alignments.
Trade pact hopes
Looking ahead, Pillai pointed to a potential positive shift in the second half of 2025 if the proposed India–US Bilateral Trade Agreement is successfully concluded. “The agreement will cover all sectors with some specific carveouts for sensitive items on both sides. The overall impact will be positive,” he said.
In addition to the US, India is also expected to finalise trade agreements with the European Union and the United Kingdom by September, with phased implementation over the next two years. Meanwhile, understandings with China to sustain bilateral trade and supply chains are also likely to take shape.
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