Year Ahead: Diversification and key FTAs crucial to prevent flat export growth in 2026

India’s merchandise exports reached approximately $292 billion during April–November of 2025-26, a growth of around 2.6 percent on year

As India heads into 2026, its trade outlook appears mixed, supported by early signs of market diversification but tempered by expectations that import growth will outpace exports amid global headwinds.

According to the Survey of Professional Forecasters on Macroeconomic Indicators released by the Reserve Bank of India in early December, merchandise import growth is projected to outpace exports by more than five times in 2025‑26.

The gap is expected to narrow in 2026‑27, with growth in outbound shipments improving to 4.1 percent while imports are seen rising to 5.6 percent, signalling a modest pickup in export momentum.

India's merchandise exports reached approximately $292 billion during April–November of the current fiscal, up from $284.6 billion in the same period a year earlier, a growth of around 2.6 percent, with November alone seeing a surge of $38.13 billion.

Ajay Srivastava, Founder of Global Trade Research Initiative (GTRI), also flagged 2026 as one of the toughest global trade environments in recent years, with weak external demand, rising protectionism, and new climate-linked trade barriers expected to keep merchandise exports largely flat, even as services exports provide some support to overall trade.

Services exports are expected to provide a significant buffer for India’s external sector, with receipts projected to cross $400 billion in 2026, helping overall outbound shipments to rise to $850 billion in FY26 from $825 billion in 2024-25, Srivastava added.

The US and EU:

India's trade ties with the United States and the European Union will be crucial influencers for its export's performance in 2026.

Exports to the US, India's largest export market, fell about 21 percent between May and November in 2025 amid a steeper 50 percent tariff regime.

The EU's Carbon Border Adjustment Mechanism (CBAM), effective January 1, 2026, is already curbing India's steel exports, which fell around 24 percent due to compliance and reporting requirements, with full CBAM costs set to be factored into import prices in 2027.

India is currently negotiating trade deals with both the EU and the US, and any potential reductions in reciprocal tariffs or exemptions from CBAM could boost Indian exports in 2026.

The road to negotiations for a trade agreement has been easier between India and the EU with an announcement expected in the presence of the bloc's leadership as chief guests at the Republic Day celebrations in January next year.

In FY25, India's bilateral merchandise trade with the EU stood at $136.53 billion, including $75.85 billion in exports and $60.68 billion in imports. This made it the largest trading partner for goods.

So far, 14 formal rounds of negotiations have been held, followed by ministerial interactions and technical consultations as recently as early December, as both sides work to resolve outstanding issues.

On the other hand, the path to a Bilateral Trade Agreement (BTA) between India and the US has been complicated by recent tariff actions. President Donald Trump imposed a 25 percent tariff on Indian goods effective August 7, 2025, followed by an additional 25 percent duty later in the month as a penalty related to New Delhi’s purchase of Russian crude.

So far, India and the United States have conducted five formal rounds of negotiations for the trade agreement, while engagements have continued in the interim as well, most recently during a visit by a high-level delegation from the Office of the Trade Representative, led by Deputy Ambassador Rick Switzer, to India from December 9–11.

Agriculture remains one of the most contentious issues between India and the US in the talks for a trade agreement, as New Delhi traditionally keeps farm and dairy products out of international deals, while the American administration is pushing for greater market access.

A trade deal between India and the US is crucial given that Indian exports worth roughly $48.2 billion are facing elevated tariffs.

“Unless Washington rolls back the additional 25 percent penalty tariff linked to India’s Russian oil purchases, or concludes a trade deal, exports to India’s largest market risk further erosion,” GTRI’s Srivastava said.

Diversification and FTAs:

Even as shipments to the US fell, Indian exports to other global markets rose 5.5 percent, during May and November, reflecting early signs of diversification.

India's merchandise exports to China have been rising every month this financial year, also climbing over 90 percent in November, helping to ease the impact of steep US tariffs.

Indian exporters also pivoted toward alternative markets across Asia, the Middle East, Europe and Africa, with increased shipments to the UAE, Vietnam, Belgium, Saudi Arabia, Spain, China and Bangladesh, among others.

Crisil in a note on December 16 pointed out that India’s exports to the US increased 22.6 percent in November after sliding 8.6 percent in October and nearly 12 percent in September, demonstrating resilience against the tariffs imposed.

Exports to the rest of the world also surged by 18.7 percent in November, compared with a contraction of 12.5 percent in October and a smaller growth of 10.2 growth in September, making the case for sustainability of diversifying exports, the note added.

“India’s goods exports will remain a monitorable given the delay in a trade deal with the US,” Crisil, however, cautioned.

The US and EU remain India’s most valuable markets, and disengagement is not an option. With China, where India runs a trade deficit near $100 billion, the focus must shift toward selling more, not just importing less, GTRI’s Srivastava said.

India has accelerated its push for free trade agreements (FTAs) with key economies, concluding six agreements over the past four years. These new deals, signed with Mauritius, the United Arab Emirates, the European Free Trade Association (EFTA) countries, members of the Indo-Pacific Economic Framework, the United Kingdom, Oman, and New Zealand, have taken the total number of FTAs to 18.

Talks for trade deals are underway with more countries and blocs, including Russia, Mexico, Peru, Chile, Israel.

“In 2026, India’s trade performance will be decided less by external opportunities and more by domestic execution. With tariffs rising, climate taxes kicking in and geopolitics in flux, export survival, and any growth, will hinge on competitiveness at home: better products, deeper manufacturing, lower costs and effective use of trade agreements. In a hostile global trading system, India’s exports will grow only if policy delivery matches ambition,” GTRI’s Srivastava said.