In this episode of How India's Economy Works, host Puja Mehra speaks with trade economist Dr. Nisha Taneja, Professor at Indian Council for Research on International Economic Relations (ICRIER). They unpack what the latest export data really reveals. Why did some sectors thrive while others—diamonds, pharmaceuticals, petroleum products and jewellery—registered sharp declines? Why did exports to China unexpectedly surge? And what does this tell us about India's overdependence on the US market?

The conversation also examines whether India's recent free trade agreements can genuinely help exporters, why earlier FTAs failed to deliver the expected gains, and how non-tariff barriers, product standards and local market knowledge matter as much as tariff cuts. Dr. Taneja explains why the tariff shock has become a catalyst for a new export diversification strategy, prompting the government to launch an ambitious export promotion mission aimed at helping Indian firms enter new markets.

Tune in for insights on how Trump's tariffs reshaped India's export strategy, why diversification has become an economic necessity, and what India must do to build a more resilient export ecosystem.

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TRANSCRIPT

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Puja Mehra: Dr. Nisha Taneja, thank you so much for joining the show. Thank you and pleasure to be here again with you. Dr. Taneja, the data on the impact of the US tariffs that were imposed in April of 2025, what happened with those, the impact of that on Indian exports has just come out. I wanted you to help us understand what you're seeing in this data. Are there any trends there that we did not expect?

Nisha Taneja: So just a little bit of background on why the US is so important to India. Basically, the US for many years now has been the single largest export market for India. And in fact, in the last 10 years, the share of the US market has actually increased from 15.3% to 19.8%. And what's interesting is that in the last couple of years, the concentration has actually increased very sharply. And this includes last year as well, when India actually faced the US tariffs. So despite these tariffs, the share of the US market in Indian exports remained the same as it was last year. Now, in terms of the trends, what we were expecting was that, you know, clearly, the US tariffs were a big jolt to the whole world.

And for India, particularly because of our over-dependence on this market, we were expecting that exports would actually decline. And when we looked at the data, what we found was that exports actually increased to the US. And this was a pleasant surprise.

And in fact, the increase was amongst the top 10 increases in different destinations that India exports to. So that was a pleasant surprise. But when we tried to unbundle this export rise, what we found was that the US tariffs were actually imposed on two different categories.

One was the list where tariffs were imposed. And the other was a list of items where tariffs were exempted. And this was called the exclusion list.

So what we found was that where tariffs were actually exempted, our exports went up substantially by almost 25%. But in items where tariffs were imposed, we actually lost out. And our exports fell by 11%.

So clearly, the tariffs did have a negative impact on our exports. But if you look at the exclusion list and how the increase actually happened, it can be ascribed almost exclusively to the rise in just one item, which was smartphones. Exports of smartphones in one year almost doubled from 10 billion to almost 20 billion US dollars.

And this was, of course, part of a larger strategy where the US has been trying to adopt the China plus one strategy. And very gradually, the smartphone ecosystem has been built up in India, gradually, but with very good results over the last few years. And this year was no exception.

Puja Mehra: Ma'am, what happened to the exports of items that fell in the included list?

Nisha Taneja: Yeah, so we did see massive declines in many items. Not all of them kind of got compensated or got absorbed in other markets. So some of the largest declines that we saw were in diamonds, in pharmaceuticals, petroleum oils, shrimps, gold jewellery.

But there were markets where we saw substantial gains, overall gains. And the largest gain that we saw last year was in China. And it was way ahead of other markets, which also saw increases like Vietnam, Spain, Hong Kong.

So China, it was a very distinct example of a very large gain. But the gains were all very uneven. Not all of it got absorbed, like I said.

Some of the items where we did see a substantial absorption was basically in shrimps and in gold jewellery. These were two items where India's exports actually increased. So while shrimps found an alternative market in China, gold jewellery got absorbed in the Middle East markets, largely in the UAE, Bahrain, Kuwait.

But in all the other products, we saw overall declines, which couldn't be absorbed. So one could say that there was no strategy that was guiding, no government incentives that were guiding exporters towards different markets. These are just trends that emerged maybe because of entrepreneurial skill or basically their own response to a shock, their entrepreneurial response to a shock, which is how they spanned out.

But the government on its part, it wasn't just the tariffs that were increasing, it was also the uncertainty. So it was difficult even for the government to put something in place because of the uncertainty that surrounded these tariffs.

Puja Mehra: Were you surprised by the jump in the exports to China? Oh yes, definitely surprised.

Nisha Taneja: But maybe exporters can also see that China is the second largest import market in the world. So why would they not look at China as a potential market? So in that sense, it's always surprised me that we haven't looked at this market and why is it that exporters have recognised it this late?

But yes, this huge jump is perhaps historic and has never happened before.

Puja Mehra: Is it also because of a low base and a certain change in the political environment in the last one year that we see?

Nisha Taneja: That could partly contribute to this large increase, the change in political climate. But then why is it that the same political climate doesn't hold for imports? After all, we have both exporters and importers and importers have continued to import on China.

In fact, we have huge import dependency and that chain seems to be working fine. It's only our exporters who are hesitant to export when the political climate is not very favourable. So maybe the messaging has to go down to them or maybe they've already figured it out that this is a potential market and that more can be done.

Puja Mehra: Ma'am, it's normally said that gaining market share takes time. Do we know something about how it is that Indian exporters in these particular items were able to so quickly diversify their markets and move away from US to newer markets or deeper existing markets?

Nisha Taneja: Yeah, first of all, I think other than China, the other markets where exporters were able to gain market access were traditional markets again. There were no new markets that were discovered. So in that sense, it was easy for exporters to go to markets that are already on our radar.

We have a very limited export basket, which account for a major chunk of our exports. So there was just a re-adjustment within these markets. The only new aspect that came up was with China.

And that too, I think not all of this increase can be ascribed to the losses in the US market because many items where there were losses in the US market didn't find gains in the Chinese market. So clearly, there were other forces at work, which is at this point difficult to disentangle and describe reasons to how this happened or why this happened. So again, with China, no specific steps were taken to access the Chinese market.

This was again completely driven by exporters.

Puja Mehra: We hear a lot about FTAs being signed and that being a signal of how the government is in fact trying to help exporters diversify markets, reduce dependence on the US market, which has now become a strategic imperative. Do you think signing of these FTAs is helpful?

Nisha Taneja: We have been signing FTAs since early 2000s. And there was a big wave during the 2010s, early 2010s, when we signed FTAs with ASEAN, with Japan, with Korea. And we were expecting that our exports to these markets would go up, but they didn't.

And perhaps in hindsight, what one feels is that maybe we were playing a very defensive role in those negotiations, in the sense that our concentration was only on how can we negotiate on lower tariffs, you know, but not realising that tariffs were already low in these markets. So the gains from tariffs were not very large. But where we were actually facing a problem was in non-tariff barriers.

And clearly our exporters didn't know how to access these markets. So whether it was in terms of meeting standards or understanding tastes and preferences, you know, let's look at items, labour-intensive items like, say, textiles and leather, where we did negotiate lower tariffs and we have a comparative advantage in these labour-intensive products, and yet we couldn't enter these markets. And perhaps it's because we didn't understand the tastes and preferences of these markets.

So one had to go product by product and see how we could access these markets, which we perhaps didn't realise at that time. But the newer FTAs that we have signed do take into account these aspects. And some parts of a defensive approach have been included in the sense that there are provisions which mention that we would enter into cooperative and collaborative arrangements when it comes to meeting standards, meeting compliances, or in customs cooperation.

So all these aspects have been mentioned in the new FTAs. To what extent these are going to work, we would know as we go along. And maybe fine-tune these provisions to ensure that we do have better market access into these markets.

What that remains to be seen.

Puja Mehra: I've heard officials say that just signing FTAs doesn't automatically result in increase in exports. And like you're saying, I think figuring out what the local tastes are and adjusting and adapting to that is also important. Ma'am, from this one year of Trump tariffs, what are the lessons that we can draw?

Clearly, you're saying that the tariffs were designed in a way where what US wanted to see an increase in this sort. That's probably why smartphones were exempted. But other than that, what are the lessons we are seeing?

And if you could also say something about this, a little more about this.

Nisha Taneja: I think we've really learned a big lesson through the imposition of the US tariffs. We always knew that we needed to diversify our markets. We always knew that we were over-dependent on the US, but it never hit us this hard before.

So this was a lesson for us that we need to have a proper strategy in place to diversify our market base. And just days after, actually, the government announced the export promotion mission in 2025. And this was clearly in response to the US tariffs, where diversification was explicitly mentioned as a strategy.

So both product and market diversification feature as very explicit strategies. And a massive amount has also been allocated towards the mission. It's 25,000 crores that's been allocated towards this mission.

And this is going to help firms not only in terms of getting trade finance, but also in terms of preparing them for the different markets. And what they're also suggesting is that there should be a product market approach. So for every product, look at all the markets, and then see what kind of requirements are needed to comply with in these markets.

In fact, the government also tried this with textiles. They did this just soon after the 50% tariff was imposed by the US government. This was really a wake-up call, and the strategy was put in place very, very quickly.

So what it suggests is that the textile exporters can reach out to 40 markets. So these 40 markets were identified. And at the district level, at the cluster level, items were identified in different clusters, and they were then linked to export opportunities.

And this meant that it brought on board the export promotion councils, the Ministry of Commerce, the Ministry of Textiles, and the export promotion missions abroad. So all of them were brought under the same framework, and this outreach exercise was rolled out. This also included holding trade fairs, buyer-seller meets, and equipping them with meeting these export requirements of different markets.

It's a very comprehensive scheme that has been rolled out. Now, that needs to be replicated for multiple products and multiple markets. Now, let's see how this gets implemented, because for every product, the strategy is going to be different.

So it is going to be very challenging working it out through our entire export system.

Puja Mehra: And what is the data showing for something like, say, textiles? Did they manage to protect their export levels, or did they suffer losses? Too soon to say.

Nisha Taneja: This has just been rolled out. Let's see what next year's numbers show us. Personally, I do feel that every product also has a different kind of supply chain.

So the impediments along the supply chain are also different. So it requires a very deep analysis of all the impediments that the exporters are likely to face through the entire supply chain. So it would require reorienting ourselves and our export strategy completely.

Puja Mehra: Ma'am, also, outside of US, is there that kind of the size of the market? Is that really available for the large variety of export items that we have? Will all those items that did suffer because of the tariffs, will they find alternative markets somewhere or the other, given all of these steps that you're suggesting are taken?

Is that possible?

Nisha Taneja: It's definitely possible, because I think the speed with which this scheme was rolled out, it's given us an opportunity to look at the entire export ecosystem in a comprehensive manner. Like I said, we've reflected on our own policies because of the US shock. And if we change our track for the better, it would be because of our efforts, both by the government and by the exporters.

And this charged ecosystem has probably happened because of the shock that we got from the US. So maybe it was a blessing in disguise and that we might do better. In fact, even our recent FTAs that were negotiated, they were finalised during this last one year.

And the diversification aspect was very much at the back of the minds of the negotiators. And that is why these cooperative mechanisms were perhaps put in place.

Puja Mehra: Hanging power for so long, the EU FTA was, I think, being negotiated for nearly 20 years. Correct.

Nisha Taneja: So all these negotiations got finalised, perhaps because of the US shock, tariff shock. So it's changed our export ecosystem, our policies, the way the entrepreneurs can react to risk. So this year will probably go down in history for India's exports.

Puja Mehra: I know for exports to rise despite the tariffs, that was really something.

Nisha Taneja: Yes. Yeah. So there is some resilience, but at the same time, we have been quite vulnerable.

Puja Mehra:Right. Thank you. Thank you, Ma'am.

Nisha Taneja: Thank you. Thank you so much, Puja.