India's export sector is facing growing headwinds due to aggressive trade policies implemented by key partners like the United States and the European Union (EU). Santosh Sarangi, head of the Directorate General of Foreign Trade (DGFT), warned that escalating import tariffs and protectionist policies, such as the US CHIPS Act, are posing significant challenges for Indian exporters. The CHIPS Act, which aims to boost domestic semiconductor production in the US, has indirectly impacted Indian electronics exports, as American firms are incentivized to source components locally rather than from foreign suppliers. This shift is part of a broader trend where major economies are increasingly focusing on self-reliance, making it more difficult for Indian exporters to sustain their market share.
One of the most pressing concerns for India is the US’s proposed reciprocal tariff policy, set to take effect in April under former President Donald Trump’s trade measures. This policy is expected to impose steep tariffs on imported goods from countries that impose higher tariffs on American products. India, which has historically maintained relatively high tariffs on certain categories of imports to protect its domestic industries, could see retaliatory measures affecting crucial export sectors such as automobiles, pharmaceuticals, textiles, and agricultural products. Analysts from Citi Research estimate that Indian businesses could suffer annual losses of nearly $7 billion due to these trade restrictions, making it one of the most significant trade challenges India has faced in recent years.
In response, India’s trade minister, Piyush Goyal, has traveled to the US for crucial trade negotiations. His visit aims to mitigate the impact of these new policies, explore possible exemptions for key Indian exports, and strengthen trade relations between the two countries. India has been advocating for a more balanced approach that would allow its exporters to maintain access to the US market while addressing concerns related to tariff structures and trade imbalances. However, trade analysts believe that even with diplomatic efforts, Indian exporters must brace for a period of heightened uncertainty and potential disruptions in global supply chains.
Meanwhile, Indian exporters are also facing increasing challenges from the European Union, which has been implementing stricter trade regulations in the name of sustainability and environmental protection. The EU’s Carbon Border Adjustment Mechanism (CBAM), commonly referred to as the carbon tax, is expected to raise costs for Indian businesses, particularly in energy-intensive industries like steel, aluminum, cement, and chemicals. This tax is designed to discourage imports from countries with high carbon footprints, effectively making it more expensive for Indian manufacturers to export to the European market. Many Indian companies now face the difficult task of investing in cleaner technologies to meet the EU’s stringent environmental standards or risk losing a major export market.
Furthermore, the EU has been increasingly relying on non-tariff barriers to limit imports from countries outside the bloc. These include stricter compliance requirements, product certifications, and enhanced labor and environmental standards that many Indian exporters find challenging to meet. The cumulative impact of these policies is making it increasingly difficult for Indian businesses to compete in European markets, which have traditionally been key destinations for Indian exports.
Despite these external challenges, India's export performance has shown resilience. Between April 2024 and January 2025, India's total exports stood at $682.59 billion, reflecting a 7.2% increase from the previous year. This growth has been driven by strong performances in sectors such as information technology, pharmaceuticals, and engineering goods. However, the increase in exports has not been sufficient to bridge the country’s trade deficit. During the same period, India’s imports were recorded at $770 billion, resulting in a trade deficit of $87.47 billion. This persistent trade imbalance underscores the need for India to diversify its export markets and strengthen its competitiveness in global trade.
To counter these mounting trade barriers, India has been actively working on expanding its trade partnerships with emerging markets. The government has prioritized free trade agreements (FTAs) with countries in Southeast Asia, Africa, and Latin America to reduce dependence on traditional Western markets. In recent months, India has accelerated negotiations with countries such as Brazil, Mexico, and South Africa to open up new avenues for its exporters. Additionally, India is focusing on strengthening its domestic manufacturing capabilities through the Production-Linked Incentive (PLI) scheme. This initiative aims to boost key industries, including electronics, pharmaceuticals, renewable energy, and automobile manufacturing, by offering financial incentives for domestic production and exports.
Trade experts argue that India must adopt a multi-faceted strategy to navigate the evolving global trade landscape. Some of the key steps recommended include lowering import tariffs on critical raw materials to enhance manufacturing competitiveness, investing in cutting-edge research and technology to close the innovation gap with developed nations, and improving infrastructure to support faster and more cost-effective logistics. Another crucial aspect is deepening integration into global supply chains by aligning with major international trade hubs and enhancing collaboration with multinational corporations.
In the face of rising trade tensions and evolving global policies, India’s export strategy must balance protecting domestic industries with ensuring international competitiveness. With mounting restrictions from both the US and the EU, the coming months will be critical in shaping the country’s long-term trade policies. Indian businesses will need to adapt quickly to new trade realities while policymakers work towards creating an environment that fosters export growth and strengthens the country’s position in the global economy.
