New Delhi: NITI Aayog, India’s premier policy think tank, unveiled the third edition of its Trade Watch Quarterly on July 14, 2025, in New Delhi, shedding light on India’s trade performance for the third quarter of FY 2024-25 (October–December 2024). Released by Dr. Arvind Virmani, Member of NITI Aayog, the report provides a data-driven analysis of India’s merchandise and services trade, with a special focus on the implications of evolving US tariff policies. Amidst global geopolitical volatility and shifting trade alignments, the report underscores India’s cautious resilience and highlights strategic opportunities for enhancing export competitiveness, particularly in the US market.
India’s Trade Performance: A Snapshot of Q3 FY25
In Q3 FY 2024-25, India’s trade performance demonstrated resilience despite global uncertainties. Merchandise exports grew by 3% year-on-year, reaching $108.7 billion, while imports surged by 6.5% to $187.5 billion, widening the merchandise trade deficit. However, the services sector emerged as a key stabilizer, with services exports soaring by 17%, generating a $52.3 billion surplus. This robust growth in services exports helped offset the merchandise trade deficit, reinforcing India’s growing prominence in the global services economy.
The report highlights the stability of India’s export composition, with notable gains in specialized sectors. For the first time, aircraft, spacecraft, and related parts entered the top ten export categories, posting an impressive year-on-year growth of over 200%. This surge reflects India’s expanding capabilities in high-tech and specialized manufacturing. Additionally, high-tech merchandise exports, led by electrical machinery and arms/ammunition, have maintained strong momentum since 2014, growing at a compound annual growth rate (CAGR) of 10.6%.
India’s dominance in Digitally Delivered Services (DDS) was reaffirmed, with the country ranking as the world’s fifth-largest exporter in this category, recording $269 billion in DDS exports in 2024. Regionally, North America and the European Union continued to dominate as export destinations, accounting for nearly 40% of India’s outbound shipments.
US Tariff Policies: A Strategic Window for India
The thematic focus of this quarter’s Trade Watch Quarterly is the evolving US trade and tariff structures and their implications for India’s export competitiveness. The report identifies a strategic window for India to expand its market share in the US, driven by higher tariffs imposed by the Trump administration on key competitors like China (30%), Canada (35%), and Mexico (25%). These tariffs make Indian goods relatively cheaper and more attractive in the US market, positioning India to gain a competitive edge in 22 out of the top 30 HS 2-level product categories, representing a market size of $2,285.2 billion.
Competitive Advantage in Key Sectors
India is poised to gain market share in 61% of its trade value exports to the US, particularly in high-value and labor-intensive sectors. Key sectors where India holds a tariff advantage over competitors like China, Mexico, and Canada include:
- Nuclear reactors
- Iron and steel
- Textiles
- Electrical machinery
- Vehicles
In 78 products, which account for 52% of India’s exports to the US and 25% of total US imports (worth $1,265 billion), India stands to gain significant ground. These products span diverse categories such as minerals and fuels, apparel, electronics, plastics, furniture, and seafood. However, the report notes that in six product categories, Indian exporters face a marginally higher average tariff (1–3%) compared to competitors, which could be addressed through targeted negotiations.
In 17 of the top 100 products at the HS-4 level, representing 28% of India’s US-bound exports, India’s competitive position remains unchanged due to the absence of tariff differentials. Additionally, India’s competitiveness remains stable in 6 out of the top 30 HS 2-level categories, which account for 32.8% of its exports to the US and 26% of total US imports, valued at $26.5 billion.
Challenges and Opportunities
While India enjoys a tariff advantage in many sectors, the report emphasizes the need for agile policymaking to capitalize on these opportunities. The average tariff disadvantage for India is only 1% in categories where it faces slightly higher tariffs, presenting a manageable challenge that can be addressed through strategic trade negotiations. The report identifies significant opportunities in high-value sectors like electronics and nuclear reactors, as well as labor-intensive goods such as apparel and textiles, which align with India’s manufacturing strengths.
Policy Recommendations to Boost Export Competitiveness
To leverage the shifting global trade landscape, NITI Aayog’s report outlines a series of policy measures aimed at enhancing India’s merchandise and services trade.
Boosting Merchandise Trade
- Enhancing Export Competitiveness:
- Expand the Production-Linked Incentive (PLI) Scheme to labor-intensive sectors such as leather, footwear, furniture, and handicrafts. This expansion would bolster India’s manufacturing capabilities and create jobs.
- Rationalize electricity tariffs by reducing cross-subsidization and increasing the use of renewable energy, which would lower manufacturing costs and improve export margins.
- Trade Facilitation and Market Access:
- Strengthen the Authorised Economic Operator (AEO) Program to streamline customs processes and enhance trade efficiency.
- Launch targeted schemes under the Export Promotion Mission to support exporters in accessing new markets.
- Diversify Trade Partners and Agreements:
- Integrate India into larger supply chains to reduce dependency on specific markets.
- Pursue the India-EU Free Trade Agreement (FTA) and implement Jan Vishwas 2.0 to foster trust and streamline regulatory processes.
Boosting Services Trade
- Negotiate Services-Focused FTAs:
- Pursue a services-focused trade agreement with the US, modeled on the India-UK FTA, with robust provisions for digital trade in sectors like information technology, financial services, education, and professional services.
- Broaden Mutual Recognition Agreements (MRAs):
- Expand MRAs to facilitate professional mobility and create opportunities for Indian service providers in global markets.
- Simplify Licensing and Regulatory Compliance:
- Address challenges such as inconsistent data compliance and intellectual property concerns to boost service exports.
- Promote Innovation and Skill Development:
- Invest in upskilling and technology adoption in high-growth sectors like digital health, fintech, cloud computing, and ed-tech to maintain India’s edge in the global services market.
India-US Trade Negotiations: A Critical Juncture
The report’s release coincides with ongoing India-US trade negotiations, with a team from India’s commerce ministry currently in Washington for talks on a bilateral trade agreement (BTA). Negotiations, which resumed on July 14, 2025, aim to secure an interim deal by fall 2025, with a broader agreement expected in the coming months. The timing is critical, as the US has extended its deadline to impose additional tariffs on several countries, including India, until August 1, 2025.
India has resisted US demands for duty concessions on agricultural and dairy imports, citing its consistent stance across previous FTAs. Meanwhile, India is pushing for the rollback of steep US tariffs on Indian steel (50%), aluminum (50%), and automobiles (25%). In return, India seeks concessions for its labor-intensive exports, including textiles, gems and jewelry, garments, plastics, chemicals, leather goods, shrimp, oil seeds, grapes, and bananas.
The US, on the other hand, is seeking duty relief on industrial goods, automobiles (especially electric vehicles), wines, petrochemical products, and agricultural imports like dairy, apples, tree nuts, and genetically modified crops. Under World Trade Organization (WTO) rules, India has kept the option of retaliatory tariffs open, signaling its readiness to respond if negotiations falter.
IDBI Bank’s Role in Supporting MSMEs
In a related development, the ET Make in India SME Regional Summit in Thane on June 26, 2025, highlighted the pivotal role of IDBI Bank in revolutionizing MSME financing. As the banking and lending partner for the summit, IDBI Bank is leveraging its dual legacy in development finance and MSME focus to provide tailored financial solutions. Executive Director Nagaraj Garla emphasized the bank’s commitment to supporting MSMEs, which form the economic backbone of India.
IDBI Bank’s initiatives include:
- Digital-first solutions: A sophisticated collection and payment mechanism that automates cash flow tracking and sends reminders to defaulters, reducing administrative burdens for micro-enterprises.
- AI-driven analytics: Tools that anticipate customer needs and proactively offer financing solutions.
- Specialized MSME teams: Experts who understand local business challenges and manage risks like currency fluctuations for exporters.
- Training and incubation: Partnerships with the Entrepreneur Development Institute of India to offer bootcamps and startup incubation programs.
These efforts align with NITI Aayog’s recommendations for enhancing export competitiveness, particularly for labor-intensive sectors critical to MSME growth.
Conclusion: Seizing the Opportunity
NITI Aayog’s Trade Watch Quarterly Q3 FY25 paints a picture of cautious optimism for India’s trade landscape. With merchandise exports growing steadily, services exports surging, and a strategic tariff advantage in the US market, India is well-positioned to expand its global trade footprint. However, capitalizing on these opportunities requires agile policymaking, strategic trade negotiations, and targeted investments in innovation and infrastructure.
As Dr. Arvind Virmani noted, “India’s evolving trade engagement reflects a deeper advancement of the economy, anchored by rising competitiveness, innovation, and strategic efforts to strengthen its presence in key markets like the United States.” The report serves as a critical resource for stakeholders, offering actionable insights to navigate the complexities of global trade and position India as a leading player in the evolving economic order.
Frequently Asked Questions (FAQs)
1. What is the key focus of NITI Aayog’s Trade Watch Quarterly for Q3 FY 2024-25?
The third edition of Trade Watch Quarterly, released on July 14, 2025, provides a data-driven analysis of India’s merchandise and services trade performance for October–December 2024. Its thematic focus is on the evolving US tariff structures and their implications for India’s export competitiveness, highlighting opportunities to expand market share in sectors like pharmaceuticals, textiles, and electrical machinery due to higher US tariffs on competitors like China, Canada, and Mexico.
2. How did India’s trade perform in Q3 FY 2024-25?
India’s merchandise exports grew by 3% to $108.7 billion, while imports rose by 6.5% to $187.5 billion, widening the trade deficit. Services exports surged by 17%, generating a $52.3 billion surplus, which offset the merchandise deficit. Notably, aircraft, spacecraft, and parts entered the top ten export categories with over 200% year-on-year growth, and India ranked as the world’s fifth-largest exporter of Digitally Delivered Services (DDS) with $269 billion in 2024.
3. How do US tariffs provide a competitive edge for Indian exporters?
The Trump administration’s tariffs—30% on China, 35% on Canada, and 25% on Mexico—make Indian goods relatively cheaper in the US market. India is poised to gain market share in 61% of its trade value exports, covering 22 out of the top 30 HS 2-level categories (worth $2,285.2 billion). Key sectors include nuclear reactors, iron and steel, textiles, electrical machinery, and vehicles, with opportunities in high-value and labor-intensive goods like electronics and apparel.
4. What policy measures does NITI Aayog recommend to boost India’s trade?
For merchandise trade, NITI Aayog suggests expanding the Production-Linked Incentive (PLI) scheme to labor-intensive sectors, rationalizing electricity tariffs, improving the Authorised Economic Operator (AEO) Program, and pursuing the India-EU FTA. For services trade, recommendations include negotiating a services-focused FTA with the US, broadening Mutual Recognition Agreements (MRAs), simplifying regulatory compliance, and investing in upskilling for sectors like digital health, fintech, and ed-tech.
5. What is the status of India-US trade negotiations as of July 2025?
India’s commerce ministry is engaged in talks in Washington for a bilateral trade agreement (BTA), aiming for an interim deal by fall 2025. India resists US demands for duty concessions on agriculture and dairy but seeks tariff reductions on Indian steel (50%), aluminum (50%), and automobiles (25%). India is pushing for concessions on labor-intensive exports like textiles, gems, and garments. The US extended its tariff imposition deadline to August 1, 2025, with India reserving the right to impose retaliatory tariffs under WTO rules.
