The global trading environment is becoming increasingly unpredictable. The rules-based multilateral trading system that emerged with the World Trade Organization (WTO) has steadily weakened over the past two decades.
The failure of the Doha Round to achieve its original objectives, the rise of unilateral tariffs by countries such as the US, and the paralysis of the WTO’s dispute settlement system have accelerated the shift towards bilateral, regional and plurilateral trade agreements as countries seek to safeguard their economic interests.
Moreover, geoeconomic competition, industrial policies and supply-chain partnerships have gathered pace, reflecting a growing emphasis on economic security and strategic resilience.
The latest quarterly trade data underscores both India’s export resilience and its structural vulnerabilities. During April-June, merchandise exports grew 15.9% to $129.3 billion while non-petroleum exports rose 12.4%, driven by engineering goods, electronics, chemicals, gems and jewellery and rice.
More encouragingly, exports to India’s free trade agreement (FTA) partners grew by 25%, raising their share in India’s exports from 31.1% to 33.4%. Yet, imports of crude oil and critical industrial inputs increased even faster. About nine-tenths of India’s crude oil requirement is imported, exposing the economy to geopolitical disruptions and energy price shocks.
Reflecting this vulnerability, India’s merchandise trade deficit widened to $15.3 billion in June. The message is clear: while FTAs are opening new markets, trade resilience ultimately depends on stronger domestic manufacturing and lower dependence on strategic imports.
India has recalibrated its trade strategy by concluding FTAs with the UAE, Australia and New Zealand in the recent past and most recently with Oman and the UK, while negotiations with Peru, Chile, Israel and Canada are underway. A deal with the EU awaits ratification.
Despite Washington’s 10% tariff imposition on India under its new trade measures, India continues to negotiate a trade deal with the US to resolve long-standing market access issues.
The proposed Supply Chain Resilience Initiative (SCRI) with Japan and Australia further reflects a shift beyond tariff reductions and market access towards strengthening supply chains, attracting investment, facilitating technology transfer and diversifying strategic partnerships.
Yet, the bigger challenge for India lies beyond negotiating more FTAs. In an era shaped more by geo-economics than globalization, domestic economic strength and sound macroeconomic fundamentals matter as much as market access.
FTAs alone cannot insulate an economy from energy insecurity, supply-chain disruptions or excessive dependence on critical imports. Consequently, India's long-term growth will depend as much on strengthening domestic capabilities as on expanding external partnerships.
This is particularly important because unlike many export dependent economies, India’s growth is primarily driven by domestic demand, which rose to 61.5% of GDP in 2025-26, the highest since 2011-12.
Recognizing the need to reduce import dependence, the Prime Minister’s Office has reportedly asked various ministries to identify products with high import dependence but strong domestic manufacturing potential. This may be a shift in policy thinking.
Rather than returning to the protectionist import-substitution model of earlier decades, India should pursue a strategy of reducing excessive imports, strengthening domestic manufacturing, enhancing economic and supply-chain security, conserving foreign exchange reserves, narrowing the current account deficit, promoting technological self-reliance and improving long-term industrial competitiveness.
While India’s dependence on imported crude oil will continue, targeted policies to reduce imports of electronics, industrial machinery, chemicals, semiconductors, defence equipment and intermediate goods could significantly strengthen the country’s resilience to external shocks.
This would not only reduce import dependence but also improve export competitiveness and deepen India’s participation in global value chains (GVCs), where it lags manufacturing-led Asian economies such as China, South Korea and Vietnam.
The production-linked incentive (PLI) scheme is an important step in this direction, with the government disbursing ₹35,354 crore to beneficiaries in 2025-26. The real challenge is to produce more competitively at home while trading more with the world.
Expanding production in electronics, semiconductors, electric vehicles, clean energy technologies and defence equipment while diversifying export products and destinations can reduce import dependence, deepen India’s integration into GVCs and enhance export competitiveness.
At the same time, a comprehensive energy security strategy, including diversified crude oil sourcing, strategic petroleum reserves and greater investment in renewable energy, green hydrogen and biofuels can reduce vulnerability to external shocks. Together, these can form the pillars of a resilient trade strategy.
Reducing logistics costs is equally important as they exceed those of Asian competitors such as China and South Korea. For instance, road freight costs in India range between ₹3.8 and ₹11 per tonne-km compared with ₹1.7 to ₹8.5 in China, while average port dwell time is 4-5 days against 2-3 days in China.
Initiatives such as PM Gati Shakti, Dedicated Freight Corridors, Sagarmala Yojana and investments in multimodal logistics infrastructure can substantially improve supply-chain efficiency and strengthen manufacturing competitiveness.
India’s response to trade flux must, therefore, combine external engagement with stronger domestic capabilities. FTAs can open new markets, but sustained export growth depends on competitive industries, lower logistics costs, enhanced energy security and reduced dependence on strategic imports.
As global trade is increasingly shaped by geoeconomics, technological rivalry and supply-chain resilience, India’s success will depend on combining openness with self-reliance. Trade flux demands more than FTAs, particularly a globally competitive and resilient domestic economy.
The author is head, economics and public policy department, IMI, Bhubaneswar