India’s Exports Face a Hard 2026 Despite FTA Push

India enters 2026 facing a far tougher global trade environment than it has seen in years. Rising protectionism in advanced economies, weakening global demand and new climate-linked trade barriers are colliding just as India is trying to scale up exports. The result is an outlook marked less by expansion and more by the challenge of holding ground.

Total exports reached about $825 billion in 2024-25, split between $438 billion in merchandise and $387 billion in services. In 2025-26, goods exports are likely to stay broadly flat, squeezed by weak global demand and renewed US tariff pressure, while services exports may inch past $400 billion. That would lift total exports to roughly $850 billion—well short of the government’s $1 trillion ambition, which now looks more aspirational than realistic in a slowing, protectionist global economy.

The external environment is deteriorating fast. The United States, under President Donald Trump, has sidelined World Trade Organization disciplines in favour of steep unilateral tariffs. India’s exports to the US fell about 21% between May and November 2025 under the current 50% tariff regime. Unless Washington rolls back the additional 25% penalty tariff linked to India’s Russian oil purchases—or concludes a trade deal—exports to India’s largest market risk further erosion.

Europe presents a different, but equally costly, challenge. The European Union will activate its Carbon Border Adjustment Mechanism on January 1, 2026, effectively imposing a carbon tax on imports. Even before payments begin, compliance and reporting requirements have already pushed India’s steel exports to the EU down by about 24%. From 2026, EU importers will price Indian goods inclusive of CBAM costs, with payments settled through certificate surrender in 2027.

There are signs of resilience. While exports to the US fell sharply, India’s exports to the rest of the world rose by about 5.5% over the same period, indicating gradual diversification. Still, 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.

Trade diplomacy is one area where India has moved decisively. Over the past four years, New Delhi has concluded six free-trade agreements—with Mauritius, the United Arab Emirates, European Free Trade Association countries, Indo-Pacific Economic Framework members, the United Kingdom, Oman and New Zealand—taking the number of India’s comprehensive FTAs to 18. In 2026, India may add more heavyweight partners, with trade talks underway or contemplated with the United States, the European Union, Russia and Mexico. If concluded, India would have trade agreements with virtually every major economy—except China, where it remains bound only by the limited tariff-concession framework of the Asia-Pacific Trade Agreement. The challenge now is not signing more deals, but making existing ones work. India must urgently review the performance of its FTAs—sector by sector—to ensure they are actually expanding exports, integrating Indian firms into global value chains, and delivering measurable trade gains rather than remaining under-utilised diplomatic trophies.

With limited influence over geopolitics, India’s 2026 strategy must turn inward. Export growth will depend on upgrading product quality, moving up the value chain, and lowering costs. The clearest opportunities lie in electronics, engineering and textiles, where higher value addition can sustain exports even in a hostile trade climate. Delivery, not declarations, will matter: operationalising the Export Promotion Mission, simplifying regulation, and improving ease of doing business are essential if India’s exports are to do more than merely survive in 2026.

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.