Data from the Department of Commerce provides important information about how India's trade with partner countries is changing. Along with this insight, the data clearly indicates that India didn't start its efforts on trade diversification, both in destination and number of goods, only after Donald Trump became President of the US for the second time; India was making efforts even before his first term.
India was already signing a number of trade deals with partner countries in the last decade as and when India could, but the data suggests that those trade deals were not converting into favourable trade numbers for India as far as the export and trade deficit numbers are concerned. Even the call for ‘Make in India’ couldn’t convert into favourable trade numbers. However, the efforts have now started converting into results post the success of the targeted PLI scheme. India has started improving its position on the account of trade deficit from $122 billion in 2021-22 to $94.6 billion in 2024-25. In 2011-12, the trade deficit was about $123 billion against a total trade of $778 billion. India’s overall trade increased significantly during the period. Total trade increased from $1.47 trillion in 2021-22 to $1.74 trillion in 2024-25.
India was already signing a number of trade deals with partner countries in the last decade as and when India could, but the data suggests that those trade deals were not converting into favourable trade numbers for India as far as the export and trade deficit numbers are concerned. Even the call for ‘Make in India’ couldn’t convert into favourable trade numbers. However, the efforts have now started converting into results post the success of the targeted PLI scheme. India has started improving its position on the account of trade deficit from $122 billion in 2021-22 to $94.6 billion in 2024-25. In 2011-12, the trade deficit was about $123 billion against a total trade of $778 billion. India’s overall trade increased significantly during the period. Total trade increased from $1.47 trillion in 2021-22 to $1.74 trillion in 2024-25.
India signed trade agreements with Australia and the UAE in 2022. India-Australia goods trade rose from an average of about $13 billion in FY2020–21 to $23 billion in FY2025–26, a 76% increase, while Indian exports doubled from $4 billion to $8 billion annually. So, with Australia, India has improved its export numbers more than the growth in total trade. India-UAE goods trade increased from $55 billion to $100 billion, an 81% rise, with Indian exports rising from $22 billion to $36 billion. In this increase, the share of oil and gas plays an important role.
The trade data with these two countries clearly indicates that the trade deals haven’t helped improve India’s external trade imbalance. The trade deficit with Australia has more than doubled to about $7 billion from $3 billion. Similarly, with the UAE, the trade deficit has also increased by more than 190% from about $33 billion to $64 billion during the period. However, what is interesting to note is that Australia’s share of India’s total trade remained around 2%, while the UAE’s increased only from roughly 7% to 8%.
In the long to medium term, if India sustains this positive development, it will release some undue pressure on the Indian Rupee, making it more competitive in the foreign exchange market. If the rupee strengthens in the future relative to other currencies, the overall impact on the domestic economy is expected to be positive. India will be less vulnerable to geopolitical disturbances. The financial market in general and the capital market in particular will become less volatile. The risk of imported inflation will go down while making imports cheaper. However, if the rupee strengthens, it will make exports less attractive.
Trade agreements are useful and important. But there remains a pertinent question: Are trade agreements sufficient to improve India's external trade imbalance? Sustained export competitiveness requires domestic reforms in land, labour, power, water, and judicial processes. Agreements create market access; structural reforms determine whether India can exploit it.
So, rather than asking how many trade deals India has entered into with partner countries in the last decade, we need to ask how these trade deals can benefit India and improve the external trade imbalance. India needs to respond at the policy and execution level internally before it enters into any trade deals to exploit the possible benefits arising from the trade deals. Prior preparation is key to success.
The trade data with these two countries clearly indicates that the trade deals haven’t helped improve India’s external trade imbalance. The trade deficit with Australia has more than doubled to about $7 billion from $3 billion. Similarly, with the UAE, the trade deficit has also increased by more than 190% from about $33 billion to $64 billion during the period. However, what is interesting to note is that Australia’s share of India’s total trade remained around 2%, while the UAE’s increased only from roughly 7% to 8%.
In the long to medium term, if India sustains this positive development, it will release some undue pressure on the Indian Rupee, making it more competitive in the foreign exchange market. If the rupee strengthens in the future relative to other currencies, the overall impact on the domestic economy is expected to be positive. India will be less vulnerable to geopolitical disturbances. The financial market in general and the capital market in particular will become less volatile. The risk of imported inflation will go down while making imports cheaper. However, if the rupee strengthens, it will make exports less attractive.
Trade agreements are useful and important. But there remains a pertinent question: Are trade agreements sufficient to improve India's external trade imbalance? Sustained export competitiveness requires domestic reforms in land, labour, power, water, and judicial processes. Agreements create market access; structural reforms determine whether India can exploit it.
So, rather than asking how many trade deals India has entered into with partner countries in the last decade, we need to ask how these trade deals can benefit India and improve the external trade imbalance. India needs to respond at the policy and execution level internally before it enters into any trade deals to exploit the possible benefits arising from the trade deals. Prior preparation is key to success.
Dr Rajeev K Upadhyay
