India has just clinched yet another free trade agreement (FTA), this time with New Zealand. Commerce and Industry Minister Piyush Goyal said on the occasion that after the soon-to-be-signed deals with the European Union and the US, the country would have entered into as many as nine bilateral trade agreements covering 38 advanced economies in six years. These countries together account for nearly two-thirds of global trade, and 65-70% of global GDP.

The FTAs and the post-2021 focus on deals with developed countries draws on the belief that no country has ever become developed without actively engaging with the rest of the world. With such a flurry of FTAs, India is rapidly expanding trade via the preferential route, as opposed to the regular most-favoured nation stream, which is under a cloud owing to the US’s blatant assault on rule-based international trade.

Over 60% of India’s imports could flow through the preferential route in a couple of years, up from less than a quarter now. The grim reality, however, is that what sets the context for these FTAs is India’s dismal export performance. At $442 billion, India’s merchandise exports in FY26 were lower than the high of $450.5 billion registered in FY23.

Outward goods shipments barely grew in the three years through FY26. That the slump was not singularly due to subdued world trade is clear from the fact that the current US dollar value of world merchandise trade, as measured by exports, was $26.26 trillion in 2025, up 7% on-year. Goods trade volume expanded 4.6% in 2025, exceeding world GDP growth of 2.9%. Not only could India not match the global average, it also witnessed a virtual export contraction through the last four years.

Shrinking export values in traditional labor intensive articles

Export values have shrunk more sharply in traditional labour-intensive sectors—gems and jewellery shipments declined for four years in a row through FY26, with an average annual fall of 7.8%; readymade garment exports fell for three straight years through FY26, with an average annual contraction of 7.3%.

What India appears to have done well in recent years is electronics exports with an average annual growth of 32% since FY22, but the import content is quite large in this segment. In the decade through FY25, India’s services exports grew by an average annual rate of 10.3%, but the growth slowed to 7.9% in FY26, which is slightly below the global average.

India’s share in global services exports is around 4.3% now, much higher than below 2% two decades ago. But further acceleration hinges on graduating into high-value services. A fast-growing economy like ours should typically gain from transacting with the external world. Instead, India’s foreign trade is currently detracting from its gross value added.

With the World Trade Organization predicting that global merchandise trade volume growth could drop to 1.9% in 2026 due to the West Asia conflict, the short-term prospects aren’t any brighter. The point is that the structural weakness of the economy is as much to blame for the subdued trend in the country’s foreign trade as the global headwinds.

A look at the granular data will reveal that the country’s export competitiveness has actually declined in recent years. To a certain extent, exporters have managed to offset this with quick market diversification. However, for India to benefit from the China Plus One supply chain strategy, rising labour costs must be offset by overall productivity gains. There is also an urgent need to redouble efforts to control logistics costs.