India–US Tariff Deal Eases Pressure, But Leaves Export Fault Lines Untouched

• US tariff relief stabilises orders but does not reverse India’s flat $435–440 billion goods export performance.
• Electronics exports rose sharply, yet labour-intensive sectors lost ground due to policy and cost disadvantages.
• Without structural reforms, tariff rollbacks delay pain rather than transform India’s export economy.

The India–US trade agreement, which lowers American tariffs on most Indian goods to 18% from the punitive levels imposed in 2025, has been framed as a diplomatic breakthrough and an economic reset. But when read against India’s actual export performance in FY26, the deal reveals something more unsettling: India’s export economy has shown endurance without transformation, resilience without reform, and growth without deepening.

The tariff rollback matters. The United States absorbs roughly 21% of India’s goods exports, making it the single most important external market. Sectors such as apparel, gems and jewellery, leather and marine products—labour-intensive and politically sensitive—were among the worst hit by the earlier 50% effective tariff. Lowering duties will stabilise orders, restore margins and prevent job losses.

But that is precisely the point. The deal prevents damage; it does not correct direction.

Exports Didn’t Collapse—And That’s the Problem

If tariffs were the central explanation for India’s export underperformance, FY26 should have delivered a shock. It did not. Goods exports remained broadly flat at around $435–440 billion, while services exports crossed $350 billion, cushioning the external account. This apparent resilience has been misread as strength.

In reality, exporters survived by absorbing pain, not by upgrading capability.

Margins were compressed. Inventories were drawn down. Investment was deferred. Capacity expansion outside electronics remained subdued. Employment growth in manufacturing was uneven and informalisation increased. India exported roughly the same value of goods, but with thinner profitability and weaker balance sheets.

FY26 Export Reality (Integrated Snapshot)

• Total goods exports: ~$435–440 bn (flat YoY)

• US share: ~21% (largest market)

• Electronics: ~$12.5–13 bn (Apr–Nov), >200% growth

• Gems & jewellery: $3.86 bn (Apr–Dec), ▼44.4% YoY

• Textiles & apparel: Flat to marginal decline

• Manufacturing share of GDP: ~15% (unchanged)

This composition matters. Electronics exports surged because smartphones were largely tariff-exempt and driven by global firms assembling in India. Domestic value addition remains shallow. Labour-intensive exports—the very sectors India should dominate—lost market share to Vietnam and Bangladesh, countries with smaller labour pools but fewer regulatory bottlenecks.

That is not a tariff story. It is a policy failure.

What Policy Still Refuses to Fix

India’s export problem is not market access; it is cost, scale and speed. Labour codes remain notified but not operationalised. Land acquisition remains fragmented across states. Port dwell times remain high. Rail freight costs remain uncompetitive. MSMEs continue to face chronic credit stress despite repeated recapitalisation of public banks.

Production-linked incentives (PLIs) layered subsidies onto inefficiencies instead of dismantling them. Customs digitisation did not unclog ports. Export promotion councils promoted, but did not transform.

As a result, India remains stuck at under 2% of global manufacturing exports. Manufacturing’s GDP share has failed to move meaningfully in a decade. Labour-intensive exports today account for a smaller share of total exports than they did in 2013–14.

The US tariff rollback, therefore, does not open a new door; it merely removes a barricade that should never have defined India’s trajectory.

Where the Pain—and the Politics—Will Land

The distributional effects of the deal will be uneven and politically charged, because export exposure is concentrated in a handful of states that already drive India’s industrial economy.