Temporary relief: On trade performance, deeper distress ahead

India’s remarkable merchandise trade performance in November should come as some relief for the government, but should not be the basis for any complacency. India’s merchandise exports, hit by the stiff headwind of 50% tariffs by the United States, the biggest export destination, unexpectedly grew 19.4% to $38.1 billion in November 2025. This is the highest it has been in any November in the last 10 years. Also, India’s exports to the U.S. grew 22.6% to $6.98 billion in November 2025 as compared to November 2024. This was also 10.7% higher than in October 2024. This is all certainly welcome news, but it hides an element of deeper distress that will make itself apparent in the months ahead. While exports to the U.S. recovered in November, exporters say that this is because they are absorbing the hit of the higher tariffs, hoping that they will be short-lived. The other option, of losing customers and trying to win them back later after moderation of tariffs, is seen to be harder, at least for now. However, it might soon be the only option. Indian exporters to the U.S., a large chunk of which are micro, small, and medium enterprises in labour-intensive sectors, cannot continue absorbing the tariff impact for too long. The depreciating rupee is helping offset some of the impact, but India’s tariff differential with competing countries is too big to overcome. It also takes some time for supply chains to reroute. Reports are already coming in that exporters are seeing a significant drop in orders for January.

The trade deficit also shrank because India’s merchandise imports fell 1.9% to $62.7 billion in November 2025. Reducing imports is a tricky topic for India. While it is preferable to reduce import dependence in the medium term, India’s domestic capabilities are not yet robust enough to shoulder the load. Falling merchandise imports, therefore, suggest slackening demand. Coming so soon after the Goods and Services Tax rate reductions, this should be monitored carefully by the government. The broad outlines of the government’s Export Promotion Mission show that the government is thinking about how to alleviate the financial stress being faced by exporters. However, the detailed schemes have not been notified yet. These must be expedited. The government could also perhaps adapt some of its more successful COVID-era relief measures as well. For example, a credit guarantee scheme for exporters will do them more good than the planned moratorium on loan repayments will. Of course, these troubles will go away once the tariffs issue is resolved, which the government is saying will happen “very soon”. But the decision on this lies with the mercurial U.S. President Donald Trump. As such, the most prudent way forward is to hope for the best but continue preparing for the worst.