By Ajay Srivastava
India’s exports face a storm of external and internal pressures. The US has slapped a 50% tariff on most Indian goods, dealing a body blow to key sectors. Labour-intensive industries like apparel, textiles, shrimps, carpets, furniture, and jewellery along with capital-intensive goods such as chemicals and machinery now face export declines of up to 80%.
The European Union (EU) is next, with its Carbon Border Adjustment Mechanism (CBAM) set to impose new climate taxes on Indian steel and aluminium from January 2026.
But beyond these external shocks lies a deeper, self-inflicted crisis. India’s export model is increasingly uncompetitive. High input costs—driven by expensive energy, credit, and logistics—inflate production costs. Labour rigidities and infrastructure gaps worsen delivery timelines. Meanwhile, shallow domestic manufacturing, especially in electronics, limits value addition and resilience. India’s current export basket is no longer sufficient for achieving high growth. No trade agreement can substitute for stronger products and globally competitive pricing. As global markets become harder to access, India’s inability to compete on price, scale, and quality could choke its export engine just when it’s needed most.
Structural reforms for competitiveness
To survive—and thrive—India must go beyond reactive measures. The time for patchwork fixes is over—India must act boldly to transform its export ecosystem. India needs a two-pronged strategy—deep, structural reforms to boost competitiveness and value addition; and fast-track, targeted actions to deliver immediate gains.
On structural reforms, India must urgently reduce input costs by cutting energy tariffs, lowering interest rates, and fixing logistics inefficiencies. Labour laws must be simplified to allow businesses to grow and hire at scale. Simultaneously, India must reduce its reliance on imported inputs by investing in domestic manufacturing of key components like solar cells, semiconductors, and active pharmaceutical ingredients (APIs). Alongside, India must implement a time-bound 10-point action plan for manufacturing, services, and micro, small, and medium enterprise (MSME)-led export revival.
Fast-track policy actions for export revival
First, we must reinstate the Interest Equalisation Scheme with a Rs 15,000-crore annual budget and a five-year commitment to cut export financing costs, especially for MSMEs in labour-intensive sectors. The earlier version cost only Rs 2,500 crore and significantly boosted export competitiveness. Its urgent revival will provide predictable credit support to millions of small exporters struggling with high interest rates.
Second, the India-UK free trade agreement (FTA) must be swiftly implemented and the EU FTA negotiations should be pushed forward. While tariff gains may be modest due to low duties, securing long-term regulatory certainty and access to services is vital. Fast-tracking these deals will help Indian firms lock in preferential access before competitors.
Third, MSME health and exports should be boosted by raising the goods and services tax (GST) exemption limit from Rs 40 lakh to Rs 1.5 crore for goods and services. This would exempt 99% of small firms from GST, increase their profit margins, cut compliance burdens, and improve competitiveness. It would also reduce GST filings from 1.4 crore to 23 lakh, enabling stricter enforcement and detection of fake invoicing. As much as 84% of GST-registered firms have a turnover below Rs 1.5 crore but contribute less than 7% of the total tax. Yet, they deal with high compliance costs. This step won’t hurt revenue but will help small businesses invest, grow, and create jobs, while improving overall tax compliance and system efficiency.
Fourth, a focused export revival package is needed for labour-intensive sectors such as garments, textiles, carpets, footwear, and jewellery as these are most vulnerable to high US tariffs. Additionally, we must incentivise backward linkages, ensure competitive export credit, and adopt a Bangladesh-style ecosystem approach to reclaim lost global market share and generate mass employment.
Fifth, we should widen India’s services export portfolio beyond IT and business services. Global market share expansion in underrepresented sectors like financial services, insurance, IP (intellectual property) licensing, travel, and repair services should be prioritised. Dedicated export promotion schemes, skill development, and regulatory reforms can help India tap into the remaining 64% of the global services trade.
Sixth, the import dependence on China should be reduced. A national import substitution and supply chain diversification mission that targets high-dependence sectors is needed—smartphones, electronics, solar cells, lithium batteries, and APIs. Production-linked incentives (PLIs), tariffs, and foreign direct investment curbs should be utilised to shift sourcing away from China and promote resilient domestic ecosystems.
Seventh, it needs to be ensured that future FTAs do not worsen inverted duty structures. Finished goods from FTA partners entering India duty-free, while raw materials from other countries facing import duties, creates this problem. Tariffs should be harmonised to support local manufacturing and reintroduce FTA-specific tariff correction measures during annual budget cycles.
Eighth, India must urgently prepare for new EU trade barriers like the CBAM, the Deforestation Regulation, and the German Supply Chain Act. From January 1, 2026, Indian steel and aluminium exports to the EU will face a carbon tax. Exports of these products faced a 24.4% drop in shipments this year with most MSMEs opting out. Soon, farm exports will also be taxed under EU deforestation rules. India should help exporters meet these complex regulations, build certified green supply chains for EU-bound goods, and consider strong reciprocal measures to counter the growing use of climate rules as hidden trade barriers.
Ninth, a national quality assurance campaign for export sectors should be launched, especially for agriculture and food. India can introduce global-standard pesticide norms, mandatory traceability via blockchain, and joint quality control schemes with the industry. Mutual recognition agreements with key trading partners can be signed to reduce rejections and enhance trust in Indian goods.
Lastly, a fully digital National Trade Network should be established, consolidating all export-related compliances under one portal. Department-centric approaches must be replaced with exporter-centric systems. This reform alone can enable 1 lakh new small businesses to begin exporting within a year by simplifying procedures and reducing bureaucratic friction.
India cannot export its way to prosperity without bold reforms at home. Only a comprehensive strategy—combining cost correction, domestic manufacturing, and smart trade diplomacy—can revive the export engine. The world won’t wait. India must act now or risk falling irreversibly behind.
The writer is founder, Global Trade Research Initiative.
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