Indian Exports May be More than Just Faltering 

The Indian economy faces another challenge. Recent export numbers raise concern and call for closer scrutiny. While much of the focus has been on the trade relationship with the United States, a closer look at official data points to a broader set of pressures.

Data from the first five months of the current fiscal year, April to August 2025, highlight a weakening trend that has, so far, drawn limited public attention. India’s exports to as many as half of its top 20 destinations contracted year on year during this period.

Consider this: exports to the Netherlands, India’s third-largest export destination, are down 18%. For the United Kingdom, the fifth-largest partner, exports fell nearly 9%. Other partners have also recorded declines. Exports to Singapore, a hub for re-exporting Indian goods, dropped 13%. Even in Saudi Arabia, despite stronger diplomatic and trade ties, exports contracted by almost 13% (see table).

So how did India’s overall exports still manage modest growth of about 2.5% during this period? The explanation lies with shipments to the United States, which remains India’s most important market.

American Mirage 
The US, India’s largest trading partner, accounted for nearly one-fifth of shipments. Exports there rose 18% between April and August. Yet this reflected frontloaded orders rather than structural strength.

The surge resulted from efforts to beat impending tariffs from the Donald Trump administration. After new tariffs were announced but deferred for 90 days in April, Indian exporters accelerated shipments, while American importers advanced orders. Companies such as Apple reportedly flew in large consignments of iPhones ahead of the deadline. This temporary increase offset some of the contraction elsewhere.

With tariffs taking effect in August, export momentum slowed. Year-on-year growth to the US eased to 7.5% in August, while month-on-month, shipments fell 16.3% from $8 billion in July to $6.7 billion in August.

If the contraction seen in other markets persists alongside slowing exports to the US, 2025–26 could bring a sharper fall in India’s export performance unless a trade deal is secured.

Efforts to reach such a deal have yet to yield results. Commerce Minister Piyush Goyal’s recent visit to Washington produced little movement so far. Meanwhile, President Trump announced a 100% import tax on branded pharmaceutical products. Although most Indian exports to the US are generics, some companies with branded lines may be affected.

Shipments to China, the fourth-largest destination, grew strongly, though these were concentrated in low-value raw materials and minerals, limiting their impact on value addition and jobs. Exports to the UAE, the second-largest destination and an important re-export hub, are also beginning to slow.

Concerns Rise
The challenges extend beyond merchandise trade. Services exports, another mainstay, are also under pressure.

The H-1B visa programme, central to India’s IT services sector, has been constrained by a fee hike to $100,000, raising costs for companies and professionals. This affects IT firms such as Infosys, Wipro, and TCS, as well as students hoping to secure work opportunities in the US. Remittances, a significant source of foreign exchange, may also be affected.

Proposed US legislation like the HIRE (Halting International Relocation of Employment) Act adds to the uncertainty. With both goods and services trade under strain, India’s external sector faces heightened vulnerability.

Exports of goods and services account for about one-fifth of GDP. Sustained growth of 7–8% will be difficult without strong export performance.

The pressures are already evident. Weaker export earnings mean fewer dollar inflows, while foreign portfolio outflows have weighed on capital markets. Net foreign direct investment was near zero in 2024–25. Though the situation has slightly improved this year, portfolio outflows continue. Dollar scarcity has contributed to a 3.5% depreciation in the rupee in 2025.

A weaker rupee complicates monetary policy, stoking inflation and limiting the RBI’s ability to cut interest rates. Consumer and investment demand remain subdued, curbing the government’s efforts to support growth.

Policymakers need to respond with targeted interventions. Challenges differ across markets and sectors, and a uniform approach is unlikely to work. Addressing them will require a disaggregated, multi-layered, and strategic framework. Without it, external headwinds could deepen the strain on growth.

*To be continued. 

This is the first part of a series on India’s exports and trade. In the weeks ahead, Rajesh Mahapatra will, for BasisPoint Insight, examine sectoral and industry challenges, the dynamics with key trading partners, and the policy options available.