India Eyes New Trade Horizons as Deficit Widens, US Tariffs Loom

India is looking at strengthening its export framework to shield domestic industries from global policy shocks. Against the backdrop of tariff tensions with Washington, New Delhi is accelerating trade talks with multiple partners.

The country is now looking to improve export competitiveness as well as export and import diversification. A key development in this area is the free trade agreement with the European Free Trade Association (EFTA) – comprising Iceland, Liechtenstein, Norway, and Switzerland – which will come into force on 1 October. The deal, signed in March 2024, includes a $100bn investment commitment from EFTA nations over 15 years, and will grant Indian exporters preferential duty concession to those markets.

A government official said on Thursday that talks with Oman have already concluded and they will sign a deal on a date decided by both countries. "We have also requested the UK to fast-track and implement the trade deal. Negotiations with the EU are being expedited as well," said the official.

The ASEAN-India Trade in Goods Agreement (AITIGAI) review is also underway in New Delhi. Parallel discussions are being held with New Zealand, Peru and Chile.

Officials also acknowledge that many of India's FTAs are underutilised and now they are working towards complete saturation of such deals. For instance, the India-Australia Economic Cooperation and Trade Agreement (ECTA) for 2024 only utilised 84% for exports and 86% imports. There is still a gap of nearly 15%.

As a part of its diversification strategy, India is identifying about 50 countries out of 193 FTA and non-FTA partners, which constitute more than 90% of its export basket. "They import a lot from the rest of the world but not from India. So we will be, as a strategy, focusing on export promotion in these countries too," said the official.

Trade with China, the official noted, is currently also moving in a positive direction.

Focus on the US

The contours of a possible bilateral trade agreement (BTA) with the US are expected to be clearer by the end of August, said a commerce ministry official familiar with the matter. The official stated that India is "fully engaged" with the US in trade negotiations and discussions for the BTA are ongoing.

Notably, negotiations are underway at various levels, including the negotiating team levels, at ministerial and diplomatic levels, as well as among different industries.

In February, Prime Minister Narendra Modi and President Donald Trump set a target to double bilateral trade between the countries to $500bn by 2030. The first tranche of the deal was originally expected to be finalised by September–October this year. A US delegation is scheduled to visit India from August 25 for the sixth round of talks and further the discussions. After which, it is expected that the trade picture between the nations will become clearer.

For now, all Indian goods entering the US face a 25% tariff, with an additional 25% "penalty" set to be imposed from 27 August over India’s energy ties with Russia.

India's July Trade Data

India's merchandise exports rebounded by 7.29% to $37.24bn in July year-on-year, while trade deficit widened to $27.35bn during the month, the highest since November last year, when the trade gap was $31.77bn. Official data released on Thursday did not indicate major fallout triggered by Trump's tariffs as the rates came into effect from August 7.

The commerce ministry data also showed that imports increased by 8.6% year-on-year to $64.59bn in July 2025. During April-July 2025-26, exports increased by 3.07% to $149.2bn, while imports rose 5.36% to $244.01bn.

"Despite an uncertain global policy environment, India's services and merchandise exports in July as well as the April-July period this financial year have grown substantially," said Commerce Secretary Sunil Barthwal, adding that export growth outpaced the global average.

Engineering goods, electronics, gems and jewellery, pharmaceuticals, and chemicals were the main sectors driving the increase. The US remained India’s top export destination during April–July, while China was the leading source of imports.