US remains India’s largest export destination despite Trump tariffs
December 2025 exports reveal a sobering yet strategically promising landscape
For economic analysts who have been monitoring India’s trade dynamics for decades, the January 2026 report on December 2025 exports reveals a sobering yet strategically promising landscape.
India’s merchandise exports - goods sold to other countries - achieved only a modest 1.9 per cent year-on-year growth to $ 38.5 billion, a sharp deceleration from November’s robust 19.4 per cent increase. This slowdown stemmed primarily from declines in gems and jewellery shipments, which fell 2.2 per cent, and petroleum products, down 6.6 per cent. Even core exports - excluding those volatile sectors of gems and jewellery - grew at a subdued 3.4 per cent, compared to 19.8 per cent the prior month. Meanwhile, imports rose sharply by 8.8 per cent to 63.6 billion US dollars, widening the merchandise trade deficit - the gap between what India sells and buys - to 25 billion US dollars in December 2025 from 20.6 billion US dollars a year ago.
Remarkably, amidst this broader deceleration, the United States remained India’s largest export destination both in December and for the April-December 2025 period, with shipments totaling 65.9 billion US dollars, up 9.8 per cent from the previous year. This resilience was largely propelled by smartphone exports, which surged to become India’s top export commodity in 2025.
Looking forward to 2026, pending Free Trade Agreements—trade pacts that reduce tariffs and barriers—with the European Union (expected signing on January 27), the United States (positive signals from President Trump’s Davos comments), the United Arab Emirates (targeting 200 billion US dollars bilateral trade by 2032), and others could catalyze a rebound—if implementation is swift and effective.
Unpacking December 2025: A High-Base Effect and Sectoral Pressures
December’s tepid 1.9 per cent growth reflects a combination of a high statistical base—strong prior-year numbers making comparison difficult—softening global demand due to elevated interest rates set by the United States Federal Reserve, and intensifying competition from China. Growth in the October-December quarter eased to 1.9 per cent, down from 8.3 per cent in the July-September period. Labour-intensive sectors faced particular strain: leather exports declined 3.8 per cent, and plastics and rubber products dropped 9.6 per cent. Even perennial performers like engineering goods (1.3 per cent growth), organic and inorganic chemicals (1.1 per cent), and drug and pharmaceutical products (5.7 per cent) saw their momentum wane from double-digit gains in November.
Services exports - primarily information technology and business process outsourcing -contracted 4.0 per cent to 35.5 billion US dollars, marking the first decline in 21 months. However, with services imports also falling 2.4 per cent, the services trade surplus - a key forex earner - remained healthy at 18.2 billion US dollars. The overall merchandise trade deficit expanded to 25 billion US dollars in December 2025 from 20.6 billion US dollars a year ago, but India’s current account deficit - the broadest measure of external imbalances - is projected to stay manageable at 1.0 per cent of Gross Domestic Product in fiscal year 2026, supported by robust remittances and softer crude oil prices.
The United States as Anchor: Smartphones Drive Exceptional Performance
The United States’ dominance as India’s top export market underscores sectoral strengths amid macroeconomic headwinds. December shipments to the US totaled 6.88 billion US dollars (up 1.8 per cent year-on-year), while the April-December cumulative reached 65.9 billion US dollars (+9.8 per cent) - outpacing overall export growth. Smartphones emerged as the standout performer, catapulting to India’s number one export commodity for the full year 2025. Production-Linked Incentive schemes have fueled this boom, with Apple and Samsung expanding assembly lines in Noida and Chennai. Estimates suggest smartphone exports exceeded 24-28 billion US dollars, capturing roughly 14 per cent of global iPhone production and benefiting from tariff preferences similar to the Generalized System of Preferences.
Diversification efforts show promise:Exports to China rose 36.7 per cent during April-December, driven by naphtha demand for petrochemicals; Hong Kong increased 25.6 per cent, and Spain surged 53.3 per cent. Electronics goods overall grew 16.8 per cent in December, signaling manufacturing’s rising heft.
2026 Forecast: Free Trade Agreements as Growth Catalysts
Public domain developments point to a bifurcated 2026 outlook: merchandise exports may stagnate around 440 billion US dollars in fiscal 2026 per Global Trade Research Initiative estimates, while services could surpass 400 billion US dollars, pushing total exports toward 850 billion US dollars - short of the ambitious one trillion US dollar target. With over 18 Free Trade Agreements already inked (including the United Arab Emirates, Australia, and the United Kingdom), the focus shifts to execution amid a protectionist global environment.
The European Union Free Trade Agreement, slated for signing on January 27, 2026, in New Delhi, represents a landmark (India’s 19th such pact). The EU, India’s top trading partner at 120 billion US dollars annually, offers tariff reductions on goods like electronics and pharmaceuticals, while unlocking services for Indian information technology firms. European Commission President Ursula von der Leyen and Prime Minister Narendra Modi are set to finalize it, potentially adding 50 billion US dollars in exports by 2030 and reducing over-reliance on the US market.
A US Bilateral Trade Agreement gains traction post-President Trump’s Davos assurance of a “good deal” with his “friend Modi,” eyeing 500 billion US dollars bilateral trade by 2030 (from 191 billion US dollars currently). Negotiations resume in March 2026, balancing services complementary with energy imports despite tariff threats on Russian crude.
The United Arab Emirates Comprehensive Economic Partnership Agreement aims to double trade to 200 billion US dollars by 2032, bolstered by new pacts on liquefied natural gas, food processing, and defence. A Gujarat investment zone will enhance processed food exports. Pipeline deals with Oman, New Zealand, Israel, Chile, Peru, and the Eurasia Economic Union further diversify.
Navigating Risks and Imperatives for Policymakers
Headwinds persist:Potential 25 per cent US tariffs on Russian oil purchases, exclusion of agriculture from the EU deal, and Chinese dumping in textiles/pharma. Some insights:
1.Diversify Export Champions: Smartphones (now 35 per cent of electronics) face US scrutiny—accelerate electric vehicles and semiconductors via Production-Linked Incentive Phase 2.
2.Climb the Value Chain: Transform gems from mere cutting/polishing to design-led; pivot petroleum toward green hydrogen fuels.
3.Prioritize FTA Delivery: Ratify and implement swiftly—United Arab Emirates Comprehensive Economic Partnership Agreement delivered 20 per cent trade growth post-inking.
4.Leverage Current Account Cushion: Services and remittances cap deficits at 1.6 per cent of Gross Domestic Product in fiscal 2027.
2030 Vision: Effective Free Trade Agreements could propel exports to two trillion US dollars, with the US and EU as twin pillars, and Gulf hubs amplifying reach. For investors, prioritize electronics and pharma; traders, explore EU non-agri niches; the common citizen, anticipate manufacturing job surges as 850 billion US dollars in fiscal 2026 evolves toward one trillion plus.
India stands at an inflection:From December’s slowdown to 2026’s potential renaissance - of course, execution will define trade superpower status.
(The author is with Cholleti BlackRobe Chambers, Hyderabad)
