India’s exports face geopolitical woes but trade deals offer relief: RBI report

By Admin

30 May, 2025

India’s export landscape in 2024–25 is navigating turbulent waters, challenged by a complex mix of geopolitical tensions, rising protectionism, and looming fears of a global tariff war. The Reserve Bank of India (RBI), in its latest annual report, flagged these global headwinds as significant risks to the country’s external trade sector. However, the central bank also highlighted a silver lining—India’s growing engagement in bilateral and multilateral trade agreements.

Rising Global Uncertainty Dampens Trade Prospects

The RBI report underscores that protectionist trade policies and geopolitical frictions have emerged as formidable barriers for global merchandise trade. Input cost pressures and sluggish domestic demand are also weighing heavily on India’s manufacturing sector, making the path to economic expansion increasingly complex. Under an adjusted scenario reflecting the current global tariff situation (as of 14 April 2025), global merchandise trade is projected to contract by 0.2% in 2025.

Still, positive developments like the US-UK trade agreement and ongoing dialogue between the US and China offer some hope for global trade recovery.

Trade Agreements: A Strategic Cushion

India’s active participation in 14 Free Trade Agreements (FTAs) and six Preferential Trade Agreements (PTAs) may help absorb some of the shocks. The RBI emphasized that ongoing negotiations with key trading partners—including the US, Oman, Peru, and the European Union—are poised to give a significant boost to trade momentum. India’s newly finalized trade pact with the UK marks a milestone, capping three years of intense negotiations.

According to trade expert Ajay Srivastava, India must look beyond trade pacts and focus on strengthening its domestic competitiveness. “Less than 20% of global trade takes place under FTAs. India needs deep reforms to compete globally, including reducing production and input costs, rationalizing import duties, minimizing port delays, and improving SME access to finance,” Srivastava said.

Widening Trade Deficit and Sectoral Performance

India’s merchandise trade deficit widened substantially in 2024–25, reaching $282.8 billion from $241.1 billion the previous year. Oil imports alone made up 43.3% of this deficit. However, increased domestic coal production and reduced demand from thermal power plants led to a drop in coal imports, helping moderate the overall trade imbalance.

The trade deficit with countries like China, Russia, and the UAE expanded, while surpluses improved with the US, Netherlands, and UK.

Key Import-Export Trends

Gold imports surged by 27.4% to $58 billion, mainly driven by a 30% spike in international gold prices. Notably, the November trade deficit was revised downward from $37.8 billion to $32.8 billion due to adjustments in gold import data.

Electronic goods imports grew 12.4% to $98.7 billion. Although exports in this sector remained robust, the trade deficit widened marginally to $60.1 billion, primarily due to high imports of components and computer hardware. However, telecom instruments recorded a trade surplus of $3.7 billion.

Services Sector: A Bright Spot

India’s net services exports stood at $135.5 billion between April and December 2024, marking a healthy 12.9% year-on-year growth. Software and business services, which made up nearly 74% of total services exports, rose by 14.5%. Transportation receipts also increased by 19.5%, benefiting from higher global freight rates amid ongoing disruptions in key shipping routes. Travel services showed a 5.5% rise, reflecting a pickup in inbound tourism.

US-India Trade: Opportunities and Challenges

India’s bilateral trade with the US grew to $131.84 billion in FY25, up from $119.72 billion in FY24. Indian exports surged 11.6% to $86.51 billion, while imports grew by 7.42% to $45.33 billion. This led to a widened trade surplus of $41.18 billion, up from $35.32 billion a year earlier.

However, negotiations have faced hurdles. Last month, former US President Donald Trump imposed reciprocal tariffs, including a 26% levy on Indian goods. A US federal court has since ruled these tariffs unjustified under the International Emergency Economic Powers Act. Indian experts are now advocating a more balanced approach in upcoming trade talks, avoiding one-sided concessions.

The Road Ahead

Despite short-term hurdles, India’s proactive engagement in global trade agreements offers a buffer against rising uncertainties. Final-stage negotiations with the US and EU, combined with new deals in the pipeline, could provide much-needed impetus to the country’s trade sector. However, the RBI report makes it clear: for India to truly thrive in the international market, domestic reforms must complement external strategies.

Conclusion:
India stands at a crossroads. While geopolitical tensions and global tariff battles pose undeniable risks, smart trade diplomacy and internal reforms can help turn challenges into opportunities. The next wave of trade growth will not just come from signing deals—it will stem from transforming India’s trade infrastructure and industrial ecosystem to match global standards.