The on-going conflict in the Gulf, a key region through which significant proportion of the global energy supplies are intermediated; Russia-Ukraine conflict, which also involves the European Union, and the United States; and increasing assertion of multi-polarity in the policies and actions of key global powers, which have greatly weakened multilateralism in international economic and strategic relations, all have made managing the external sector very challenging globally. Weaponisation of trade instruments by major nations, such as the United States and China, including tariff rates and willingness to supply critical inputs and goods, has significantly contributed to the uncertainty surrounding global trade and other aspects of economic and diplomatic relations.

It needs to be emphasised that India and the United States have, as of August 29, 2026, not reached a trade and tariff agreement. This is an additional constraint on India’s bilateral trade with the United States. Policymakers in the United States continue to disregard, for reasons not apparent, the critical need to create trust and confidence with its economic partners. Trust and confidence in relations are very underemphasised factors in both domestic and international relations, but have acquired major significance in the current global environment.

In the above context, India’s competent management of its external sector merits greater recognition. This assessment is supported by the evidence presented below.

The first evidence concerns India’s external trade during April -July 2026. The source of trade data presented in all Figures (except Figure2) is accessed from PIB¹.

 

Fig 1: India: Total Trade during April-July 2026-27

Figure 1 provides data on India’s total trade during April-July 2026-27. Total exports were USD 316.42 billion (an increase of 13.0 per cent over the corresponding period in 2025-26); imports were USD 365.85 billion (an increase of 17 per cent), and total trade registered was USD 682.27 billion (an increase of 15 per cent).

 If the above trend continues, India’s total trade is set to exceed USD 2000 billion, equivalent to 40 to 45 per cent of GDP. This exhibits India’s solid trade integration with the world economy, especially for a large economy.

Encouraging trade performance has been achieved in spite of the non-conclusion of a trade agreement with the United States, as well as the following factors. First, some of the earlier trade agreements entered into by India, with entities such as ASEAN (Association of Southeast Asian Nations), comprising ten countries in Southeast Asia, have in practice been found to be in urgent need of renegotiation to generate hoped-for benefits to India.

Two-way trade between India and ASEAN reached US$128 billion in 2026. India has pushed for a review of the 2009 pact due to a growing trade deficit and concerns over non-tariff barriers and rules of origin loopholes that allow indirect entry of third-party goods. The ongoing review seeks greater liberalisation, balanced reciprocal benefits, and smoother customs cooperation.²

Second, India’s new wave of economic agreements, covering not just merchandise trade, but services, ease of mobility of persons at all levels, including business-related mobility, investments, technology, and the creative economy, are recent and their impact on the external sector is yet to be felt.

India currently has 15 FTAs in force with 27 countries, representing 28. 5 per cent of the country's exports and 32. 2 per cent of imports.

The following link provides an analysis of what the new wave trade (economic) agreements contain concerning New Zealand.³

Nine recently signed FTAs are expected to become operational within the next 10 months, with at least two to three substantial agreements coming into force in the next six months following the implementation of the Oman FTA in June.

The landmark India-EU FTA, signed in January 2026 and described as the "mother of all trade deals", covers one-third of the world population and impacts 25 per cent of global GDP.  The UK-India agreement, often described as India's most comprehensive agreement, was announced in May 2026. Around 10 trade agreements are currently under discussion, including negotiations with the Eurasian Economic Union, Peru, Chile, Israel, Canada and the Maldives. ⁴

India’s Minister for Commerce and Industry Piyush Goyal led a business delegation to Japan in August 2026. He stated, “The conversations I had …were not about factories alone. They were about economic security. Resilient supply chains that do not break the next time the world does. Semiconductors. Artificial intelligence. Clean energy. Defence-linked manufacturing. Space. Robotics for ageing societies… the areas of cooperation form part of what India and Japan are calling the India-Japan Next Generation Economic Partnership”. 

The above agreements and wide-ranging partnerships with countries at all levels of income and size strongly signify that India is regarded as a trusted partner in the dynamics of the global value chains. The impact of these new wave agreements, however, cannot be expected to be immediate, but will strengthen India’s external sector and its resilience against domestic and global developments in the next several years.

Third, India, aided by over USD 70 billion received from its Foreign Currency Non-Resident (FCNR) deposit scheme (the Scheme concluded end August 2026), has comfortable foreign exchange reserves of USD 729.3 billion as of August 21, 2026. This should help manage Indian currency movements better and assist in portfolio flows and in managing the value of Indian Currency (INR).⁵

It has been argued that the INR remains undervalued, with fundamentals continuing to be strong. Capital flow dynamics, geopolitical risk aversion, and AI (artificial Intelligence) boom cycle are often cited for the current weakness of the INR.⁶

Fourth, India’s current account deficit (CAD) in the balance of payments was comfortable during the January to May 2026 period. (Figure 2).

Figure 2: India’s current account, January-May 2026

According to research by the State Bank of India (SBI), in 2026-27, India is expected to register a surplus of USD 50 billion in its Balance of Payments, and a Current Account Deficit (CAD) of about 1 per cent of GDP, signifying a comfortable position of the external sector.⁷

Components of India’s Total Trade

Analysis of components of India’s total trade may provide additional insights.

 

Figure 3 India: Merchandise Trade during April-July 2026-27

India’s merchandise imports during April-July 2026 were USD 292.38 billion, an increase of about 19 per cent over the previous year. The corresponding increase in exports was less, at 15 per cent. India continues to exhibit a large merchandise trade deficit. It is trying to address it by focusing on efforts to diversify in terms of geographies and in products and achieve value- addition in its merchandise exports. Defence and electronics exports appear to hold promise at the margin in this regard. It is also pursuing through Make-In India and sector-specific initiatives to reduce India’s vulnerability to imports of critical goods and services.

Figure 4 India’s Non-Petroleum and Non-Gems and Jewellery Trade (April-July 2026)

Figure 4 provides data on India’s non-petroleum and non- gems and jewellery trade for April -July 2026. The data suggest that these two groups of items account for close to a quarter of merchandise trade exports, and one-third of imports. So, excluding them provides a more nuanced perspective of India’s merchandise trade. During the April-July 2026 period, exports increased by 13 per cent, but imports increased by 19 per cent, suggesting greater efforts are needed to diversify India’s exports (excluding the two groups) and increase value addition, while pursuing reduction in imports.

Figure 5 India’s Services Trade, April-July 2026

Figure 5 indicates that, as has been the norm, India exhibited a surplus of USD 69.17 billion during the April-July 2026 period, an increase of around 7.0 per cent over the corresponding period in the previous year. This partially helps reduce the adverse impact of a large deficit in the merchandise trade. Figure 5 also underlines an often under-emphasised structural feature of India’s international trade. India’s service exports during the April-July 2026 period were about 45.0 per cent of the total exports. This is obtained despite the relatively low weight of international tourism receipts in India’s service exports. For global trade in 2025, service exports were only 26.0 per cent of the total trade of USD 35.8 trillion. This strongly suggests that focusing primarily on merchandise trade would not provide an accurate picture of India’s trade.

Concluding Remarks

India’s competent and professional management of its external sector deserves wider recognition. India’s comfortable external trade position is an outcome of its excellent strategic international diplomacy, which has had considerable success in generating trust and confidence of a wide range of countries around the world, including those on both sides of the ongoing conflicts in the Gulf and the Russia-Ukraine conflict. This is a valuable but often underemphasized asset in the current fragile and uncertain global environment.

References

1. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2298878&reg=48&lang=1 (Accessed on 16 August 2026)
2. https://tvbrics.com/en/news/india-asean-trade-reaches-us-128-billion-as-partners-accelerate-free-trade-agreement-review/ (Accessed on 25 August 2026)
3. https://myind.net/Home/viewArticle/india-and-new-zealand-must-focus-on-achieving-positive-outcomes-from-the-new-wave-fta (Accessed on 28 August 2026)
4. https://swarajyamag.com/news-brief/indias-ftas-to-unlock-12-trillion-export-opportunity-as-trade-deals-cover-75-of-global-commerce (Accessed on 24 August 2026)
5. https://tradingeconomics.com/india/foreign-exchange-reserves (Accessed on 27 August 2026)
6. https://www.hdfcfund.com/learn/deep-dives/tuesday-talking-point/undervalued-rupee-putting-it-perspective (Accessed on 3 July 2026)
7. https://www.5paisa.com/news/india-may-record-50-billion-balance-of-payments-surplus-in-fy27-says-sbi-research (Accessed on 28 August)