Indian exports seem to be twisting in the wind, thanks to the triple whammy of US tariffs, subdued global demand and falling commodity prices.
While cumulative exports data during the first half of the current fiscal suggests all is well, monthly data starting September indicates that we may well be in the midst of a slow-motion train wreck. For instance, October saw a widespread contraction, not just to the US, which slapped us with a steep 50% tariff, but to almost every other export destination.
In other words, there's an air of crisis and India's export downturn could worsen amid softening global demand, tariff shocks and geopolitical tensions as we head into 2026.
The export downturn also casts a shadow on the government's ambitious $1-trillion target set for FY26. Official data shows that 34.61% of the target has been met in the first five months, but subdued growth starting September raises a concern if the export weakness will continue rest of the fiscal.
During April-August 2025, India's merchandise and services stood at $346 billion, a 5.19% YoY increase, with merchandise exports accounting for 53.09% and services 46.91%. According to World Bank data, the share of exports in India's GDP rose from 19.8% in 2015 to 21.2% in 2024. Helpfully, India's exports grew by 7.1% in 2024, outpacing global export growth of 2.5%, but whether we can achieve a similar feat remains uncertain.
Not all doom and gloom
First, the good news.
According to SBI Research, India's total merchandise exports during the first half of FY26 rose 2.9% to $220 billion as against $214 billion a year ago. Within this, the distinguishing metric pertains to the US markets as exports shot up 13% to $45 billion from $40 billion.
But here's the catch. These numbers pertain to the pre-US-tariff era, and export numbers are expected to decline sharply in the second half. In fact, September did see negative year-on-year growth of 12% as the 50% tariff on labour-intensive goods continued to hit apparel, leather and other MSME-led sectors. The US currently levies the highest tariffs among Asian nations on India.
Moreover, as the SBI report noted, the share of US in India's exports has been declining since July 2025, moving down to 15% in September 2025, with marine products reducing to 15% in September 2025 from 20% in FY25, followed by precious, semi-precious stones (6% from 37%), RMG cotton (29% from 34%) and cotton fabrics, made up articles exports (31% from 39%) leading the pack even though marine products and RMG cotton saw positive growth during April-September 2025.
With Russian oil shipments to India having decreased since 21 October, the report hopes the US to roll back the 25% tariff linked to Russian oil purchases, and eventually move toward a 15% overall rate, with India prepared to cut its own import tariffs on over 80% of goods while protecting sensitive sectors like agriculture.
The clouds on the horizon
The disappointing news is that, monthly data shows a broad decline with exports plunging 11.8% in October.
According to data from trade think-tank GTRI, year-on-year exports grew in only 5 of the top 20 destinations, with double-digit declines in several key destinations like Singapore, Australia, Italy and the UK. Of the five, only Spain (43.43%), and China (42.35%) saw healthy growth, thanks to higher petroleum product shipments, while Hong Kong (6.00%), Brazil (3.54%), and Belgium (2.22%) saw marginal increases.
In contrast, the remaining 15 markets suffered significant declines indicating broad external weakness. If exports to the US fell 8.58%, shipments to the UAE slipped 10.17%, Singapore and Australia saw far deeper contractions at 54.85%, and 52.42%, respectively, on lower petroleum, jewellery, electrical machinery, cotton textiles, steel products, and electronic shipments.
Similarly, Italy saw a negative growth of 27.66%, followed by the UK at 27.16%, the Netherlands at 22.75%, Malaysia at 22.68%, Korea 16.43%, Germany 15.14%, France 14.28%, Bangladesh 14.10%, Nepal 12.64%, South Africa 7.54%, and Saudi Arabia 1.12%.
This wasn't expected, or perhaps even anticipated as the share of India's merchandise exports to these very destinations rose during the first half of the fiscal, which SBI Research believes was a sign of India's export diversification strategy.
Exports shot up to UAE, China, Vietnam, Japan and Hong Kong, Bangladesh, Sri Lanka and Nigeria during H1, FY26 over FY25, and across different product categories.
The worst-hit
MSMEs, which account for nearly 40% of India's outbound shipments, are the worst hit.
The government has rolled out a Rs 45,060 crore package, including Rs 20,000 crore in credit guarantees to enhance the global competitiveness of Indian exporters and support diversification into new and emerging markets. But whether these initiatives are enough to stem the tide is unclear.
The report also wondered if some destinations were exporting more to the US after procuring from India.
For instance, Australia's share in US imports of pearls, precious, semi-precious stones increased to 9% year-to-date in January-August, 2025 from 2% during the same period the previous year. Likewise, Hong Kong too registered an increase from 1% to 2%.
Meanwhile, during April-October 2025, merchandise exports grew by 0.6%, while merchandise imports rose by 6.4%, widening the trade deficit to $196.8 billion from $171.4 billion in the corresponding period last year.
Compared to flat growth in merchandise exports, services exports sustained buoyancy with near-to-double digit growth of 9.7% during April-September, 2025. The growth was predominantly steered by strong performance in software and business services.
Consequently, India's current account deficit (CAD) stood at 0.2% of GDP in Q1, FY26 as against 0.9% in Q1, FY25, owing to robust services exports and strong inflow of remittances. CAD is expected to be in deficit during Q2 and Q3 of FY26 before turning positive in Q4. For the full fiscal FY26, SBI expects an overall deficit in the range of 1.0-1.3% of GDP.
It's certainly not the news that India optimists will have been wanting to hear.