India’s ambitious goal of reaching $1 trillion in combined goods and services exports by FY26 now appears increasingly difficult, despite the government’s push for free trade agreements (FTAs). A new assessment by the Global Trade Research Initiative (GTRI) suggests that weak global demand, rising protectionism, and structural challenges in India’s export basket will keep the target out of reach this year.
According to the think tank’s latest report, India’s total exports in FY26 are expected to touch around $850 billion, falling short of the $1 trillion milestone by nearly $150 billion. While services exports continue to show resilience, merchandise exports remain under pressure.
Weak Merchandise Exports Drag Overall Growth
Ajay Srivastava, founder of GTRI, said India’s goods exports are likely to show little to no growth this year. Sluggish global demand, higher trade barriers, and tariff-related disruptions have weighed heavily on shipments.
“Merchandise exports are struggling due to weak external demand and growing protectionist measures,” Srivastava said. “Services exports will provide the only meaningful cushion this year.”
GTRI estimates that services exports could cross $400 billion, helping offset stagnation in goods shipments. However, this alone will not be enough to bridge the gap needed to meet the $1 trillion target.
Trade Deals May Shift Timeline, Not Outcome
Srivastava said India could still reach the $1 trillion exports milestone if it successfully finalises major trade agreements with the United States and the European Union. However, he cautioned that such deals are unlikely to materialise in time for FY26.
“That may happen once trade deals with the US and EU are concluded,” he said. “But that looks more realistic next year, not this one.”
India has already signed 18 free trade agreements, with more under negotiation. Yet experts say the problem lies not in the number of agreements, but in how effectively exporters use them.
Domestic Economy Remains Stable
Despite export challenges, Srivastava stressed that India’s domestic economy remains strong. He pointed to steady GDP growth and easing inflation as signs of resilience.
“The domestic economy is working fine,” he said. “The GDP numbers are encouraging, and inflation remains under control.”
This internal strength has helped India absorb some of the external shocks, even as exports struggle.
Diverging Trends in US and EU Trade
India’s trade performance varies sharply across major markets.
Exports to the United States, India’s largest trading partner, fell by nearly 21% between May and November. GTRI attributed the decline to steep tariff hikes imposed by the US.
“We have seen exports to the US drop by 20.7% during this period,” Srivastava said.
Former US President Donald Trump’s administration imposed additional duties of up to 50% on certain Indian shipments. Unless Washington rolls back the extra 25% duties or locks in a trade deal, exports to the US could face further erosion.
Trade with the European Union presents a different challenge. Exports to the EU began declining even before tariff pressures intensified. GTRI said strict compliance rules and reporting requirements have hurt Indian shipments.
Steel exports to the EU fell by nearly 24%, the report noted.
From January 1, 2026, the EU will activate its Carbon Border Adjustment Mechanism (CBAM). The policy will impose a carbon tax on imports. From 2027 onward, EU importers must settle CBAM payments through certificate surrender, raising costs for Indian exporters.
Export Diversification Shows Early Signs
Despite setbacks in key markets, India has begun diversifying its export destinations. Exports to the rest of the world increased by 5.5% during the same period when shipments to the US declined.
“This shows diversification has started, though on a small scale,” Srivastava said.
However, he warned that geographical diversification alone will not deliver sustainable growth.
Export Basket Needs Structural Change
GTRI stressed that India must also diversify the composition of its exports. The current export basket relies heavily on low-value and mid-value goods.
“For deeper diversification, we must upgrade what we export,” Srivastava said. “India needs more medium- and high-technology products.”
Sectors such as electronics, engineering goods, and textiles offer the strongest potential for value addition and resilience during periods of global trade stress.
What Should India’s Export Strategy Be in 2026?
GTRI outlined several priorities for the year ahead:
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Focus inward, as India has limited control over global geopolitics
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Improve product quality and strengthen value chains
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Reduce production costs to boost competitiveness
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Use FTAs more effectively rather than signing more agreements
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Speed up policy execution and regulatory simplification
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Operationalise the Export Promotion Mission
The think tank warned that tariffs, climate-related taxes, and geopolitical uncertainty will continue to weigh on global trade.
Competitiveness Is Key to Survival
“Export survival and growth will depend on competitiveness at home,” the report said. “That means better products, deeper manufacturing capabilities, and lower costs.”
In FY25, India’s total exports stood at $825 billion, including $438 billion in merchandise exports and $387 billion in services.
While the $1 trillion target remains aspirational, analysts say India can still build a stronger foundation for future export growth provided policy execution matches ambition.
