India's Merchandise Export

India’s merchandise exports have surged despite geopolitical instabilities like the West Asian crisis. Read here to understand India’s Export Growth to Global Manufacturing Leadership

India’s merchandise exports surged by 19.6% year-on-year to USD 44.2 billion in July 2026, signalling resilience despite geopolitical disruptions in West Asia and global supply-chain uncertainties.

Strategic rerouting of maritime trade and diversification towards new markets, particularly in Asia and Africa, supported this performance.

However, the simultaneous widening of the trade deficit indicates that higher export volumes alone do not necessarily imply deeper export competitiveness.

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India’s merchandise exports

India’s merchandise exports reached USD 44.2 billion, while merchandise imports rose to USD 76.2 billion.

Services exports increased by 6.4% to USD 35.9 billion, but services imports grew faster at 9.5%, contributing to a combined trade deficit of around USD 15 billion.

The export surge was driven substantially by:

Petroleum products, which accounted for about 39% of export growth.
Electronic goods, whose exports grew by 30.7% during April–July 2026.
Engineering goods, which expanded by 18.2%.
Agricultural and allied products, including marine products, meat, dairy and poultry.
Increasing exports to China, Singapore, Vietnam, Taiwan and African markets.

The resilience also reflects India’s ability to reroute maritime trade around geopolitical chokepoints such as the Strait of Hormuz and diversify its export destinations.

Rising Exports but Weak Competitiveness

The headline export numbers conceal several structural weaknesses.

Petroleum-led growth

A significant proportion of export growth originates from refined petroleum products. Such exports depend heavily on imported crude oil and international prices, and therefore do not necessarily represent expansion of domestic technological capability.
India must increasingly shift from processing imported inputs to producing high-value components and technologies domestically.

The Middle-Technology Trap

India faces competition at both ends of the manufacturing spectrum.
At the lower end, countries such as Bangladesh and Vietnam offer competitive labour-intensive manufacturing. At the high end, China, South Korea and Taiwan dominate technology-intensive manufacturing.
India therefore risks becoming concentrated in the middle, undertaking assembly and relatively low-value manufacturing without developing sufficient technological depth.

Weak R&D intensity

India’s Gross Domestic Expenditure on R&D remains around 0.65% of GDP. This limits indigenous innovation and makes it difficult to move from assembly towards high-value component manufacturing.

This is particularly important in sectors such as:

semiconductors
electronics
pharmaceuticals
telecommunications
defence technologies
green technologies
precision engineering

Non-Tariff Barriers

Traditional tariffs are increasingly being supplemented by environmental, labour and technical standards.
Measures such as the EU Carbon Border Adjustment Mechanism (CBAM) and deforestation-related regulations can increase compliance costs for Indian exporters, particularly MSMEs.
Thus, export competitiveness increasingly depends not merely on price, but also on quality, sustainability, traceability and certification.

Geopolitical and Supply-Chain Vulnerabilities

The conflicts in West Asia and disruptions around the Red Sea demonstrate India’s vulnerability to maritime chokepoints.

Longer shipping routes can increase:

freight costs
insurance premiums
delivery times
inventory requirements

Building resilient supply chains is therefore an important component of India’s export strategy.

Inverted Duty Structure

When raw materials and intermediate inputs face higher tariffs than finished products, domestic manufacturers become less competitive.
Such a structure discourages domestic value addition and can make importing finished goods more attractive than manufacturing them in India.

Dependence on Chinese Intermediates

Several strategically important sectors, including electronics and pharmaceuticals, remain dependent on Chinese intermediate inputs.
Consequently, India’s export competitiveness is partly exposed to external supply disruptions.

Low FTA Utilisation

India has entered into several Free Trade Agreements, but their utilisation by Indian exporters has historically remained relatively low.
Complex Rules of Origin, certification requirements and inadequate awareness among MSMEs prevent many firms from fully exploiting preferential market access.
This creates an important paradox- India may negotiate market access but fail to convert it into actual exports.

Way Forward

Move from Assembly to Deep Manufacturing

PLI schemes should increasingly encourage component-level and deep-tier manufacturing, rather than merely final assembly.

The focus should include:

Semiconductors
electronics components
precision engineering
indigenous technologies

Similar localisation should be pursued in APIs, telecom equipment, batteries and renewable-energy technologies.

Make R&D an Export Strategy

India needs stronger industry-academia collaboration, greater private-sector R&D expenditure and commercialisation of research.

Build Green Export Competitiveness

Rather than treating CBAM and other environmental standards solely as trade barriers, India should develop domestic capabilities in:

carbon accounting
green certification
renewable energy
energy-efficient manufacturing
low-carbon production

This can convert compliance from a constraint into a competitive advantage.

Reduce Logistics Costs

India needs multimodal logistics integrating:

dedicated freight corridors
coastal shipping
inland waterways
ports
digital logistics platforms

Lower logistics costs can substantially improve the competitiveness of Indian goods in international markets.

Correct the Inverted Duty Structure

Tariff policy should ensure that inputs and intermediate goods are competitively priced, while encouraging domestic value addition.

Make FTAs Work for MSMEs

FTA utilisation should be simplified through:

digital Rules-of-Origin systems
exporter awareness programmes
simplified certification
trade-finance support
dedicated export facilitation for MSMEs

Diversify Export Markets

India should continue expanding its presence in Africa, Southeast Asia, Latin America and emerging Asian markets, while maintaining strong relationships with traditional markets such as the US and Europe.

Conclusion

India’s July 2026 export performance demonstrates resilience, but resilience should not be confused with competitiveness. Petroleum-led growth, low-value assembly and dependence on imported intermediates cannot provide a sustainable foundation for India’s emergence as a global manufacturing power.

The long-term objective must therefore shift from “export promotion” to “export competitiveness.”

This requires a coordinated strategy combining technology, R&D, skilled labour, competitive inputs, green manufacturing, resilient logistics, MSME integration and deeper participation in Global Value Chains.

India’s real challenge is not merely to export more, but to export more sophisticated, technology-intensive and domestically value-added products. Only then can India realistically move towards becoming a high-value global manufacturing hub and a “Factory to the World.”

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