Old alliances, new markets: Two-path formula for export growth

UPSC Study Note | GS-III | Indian Economy — Foreign Trade

1. At a Glance

• India's export strategy in 2025–26 rests on a "two-path formula": deepening trade with existing partner countries (old alliances) while penetrating new/alternative markets (new destinations) to compensate for losses from U.S. tariffs. [1][4]
• The approach is significant for UPSC because it links trade policy, geopolitics, sectoral economics (gems, textiles, electronics, marine), and India's $2 trillion export target — all core GS-III themes.
• India's total exports (merchandise + services) grew ~15.52% year-on-year in November 2025, demonstrating resilience even as U.S. tariffs disrupted specific commodity flows. [2]
• The topic illustrates how macro-level export growth can mask sector-level distress — a classic trap in Prelims data-interpretation questions.

2. Why in the News

• Analysis published January 6, 2026 (The Hindu BusinessLine) — based on Foreign Trade Performance Analysis data comparing September–November 2025 against the 2023–24 average for the same months — revealed that India replaced U.S.-lost sales through two channels: stronger ties with existing partners and entry into new export destinations. [4]
• Triggering background: U.S. tariffs imposed in 2025 (raised to 50% on multiple categories before partial rollback) disrupted India's export basket to America, particularly in gems & jewellery, textiles, and marine products. [3]
• India subsequently concluded a landmark trade agreement with the U.S. in early 2026 — tariffs on USD 30.94 billion of Indian exports reduced from 50% → 18%, and on USD 10.03 billion reduced to zero. [3]

3. Background & Evolution

4. Core Static Facts

A. Key Policy Mechanisms

• Export Promotion Mission (EPM): Total outlay ₹25,060 crore for FY 2025-26 to FY 2030-31; aims to improve trade finance access, global market readiness, and supply-chain resilience. [5]
• RoDTEP Scheme: Refunds embedded taxes/duties to exporters; nodal ministry — Ministry of Commerce & Industry.
• Foreign Trade Policy (FTP) 2023: Operative framework; target of $2 trillion in exports by 2030 (merchandise + services).

B. Sector-Specific Data (Sep–Nov 2025 vs. 2023-24 baseline)

[4]

C. Aggregate Export Performance

• Total exports (merchandise + services) April 2025: USD 73.80 billion (+12.70% YoY) [2]
• April–July 2025 cumulative: USD 277.63 billion (+5.23% YoY) [2]
• November 2025 total: USD 73.99 billion (+15.52% YoY) [1]

D. Textile Exports (New Markets Path)

• Textile exports grew 10% to 111 countries in April–September 2025.
• Value: USD 8,489.08 million (vs. USD 7,718.55 million previous year). [1]

E. Implementing Ministry

• Ministry of Commerce & Industry (Department of Commerce) — nodal authority for FTP, EPM, trade negotiations.
• DGFT (Directorate General of Foreign Trade) — operational arm for export data, licences, and incentives.

5. Multi-Dimensional Analysis

Economic

• Smartphone/telecom surge (+237%) masked declines in tariff-hit sectors — aggregate export growth figures can be misleading without disaggregation. [4]
• Drugs & pharma exports grew 20.19% in 2025, cushioning overall merchandise trade. [1]
• EPM outlay (₹25,060 crore) signals state-backed export credit and market development financing as a structural lever. [5]
• Currency competitiveness, freight logistics, and global commodity price cycles interact with tariff policy to determine net export realisation.

Geopolitical / Strategic

• The India–U.S. trade deal (Feb 2026) — tariff cuts on USD ~41 billion of Indian exports — is the single largest tariff relief India has secured from any partner. [3]
• New market destinations include: China, Hong Kong, Brazil, Italy, France, Australia, UAE, Belgium, Germany — reflecting a deliberate de-concentration from Anglo-American markets. [1]
• India's trade with UK, Oman, and New Zealand was deepened in 2025, part of the "old alliances" path. [1]
• FTA pipeline (UK, EU, GCC) is the institutional underpinning of the two-path strategy.

Administrative

• Two-path formula operationalisation: Path 1 — Leverage existing FTAs/CEPAs (UAE, Australia) for deeper market penetration; Path 2 — DGFT-led market development assistance for non-traditional destinations.
• EXIM Bank, ECGC play credit and risk-cover roles for new/risky market entry.
• Data lag in Foreign Trade Performance Analysis (detailed commodity-level data available 2–3 months after the reference period) is an administrative bottleneck for real-time policy response.

Historical

• India's export diversification push mirrors South Korea's 1980s "Look East" pivot and China's post-2018 trade war redirection toward ASEAN, EU, Africa.
• Post-GSP withdrawal (2019), India had already begun reducing single-market dependence — the 2025 tariff shock accelerated a trend already in motion.

Legal / Constitutional

• Foreign Trade (Development & Regulation) Act, 1992 — statutory basis for FTP and DGFT's powers.
• WTO Article XIX (Safeguards) and DSU (Dispute Settlement Understanding) are the multilateral frameworks within which U.S. tariffs are being contested. [6]
• Special Economic Zones Act, 2005 and SEZ Amendment discussions remain part of the export infrastructure debate.

Scientific / Technological

• PLI (Production Linked Incentive) scheme for mobile manufacturing — directly responsible for the +237% smartphone export surge to the U.S., as these devices face no additional U.S. tariffs (classified separately from "Made in China" goods). [4]
• Technology upgradation in textiles (shuttle-less looms, man-made fibre shift) is enabling textile exports to diversify beyond cotton-dependent markets.

6. Recent Developments (Last 12–18 Months)

• Apr–Sep 2025: Textile exports to 111 countries — 10% growth; USD 8,489 million. [1]
• Sep–Nov 2025: U.S. tariff impact clearly visible — pearls/stones (–78.5%), gold jewellery (–39%); smartphones mask decline at aggregate level. [4]
• November 2025: India's total exports hit USD 73.99 billion (+15.52% YoY). [1]
• February 2026: India–U.S. landmark trade deal announced — tariffs on USD 30.94 billion of Indian exports cut from 50% → 18%; USD 10.03 billion reduced to zero duty; sectors covered: textiles, leather, gems, jewellery, agri, pharma, machinery, home décor, technology. [3]
• Zero-duty access (post-deal) extended to: gems & diamonds, platinum, coins, clocks & watches, essential oils, inorganic chemicals, select home décor. [3]
• Export Promotion Mission (EPM) formalised with ₹25,060 crore outlay for 2025-26 to 2030-31. [5]

7. Prelims Hooks

1. India's telecom instrument exports to the U.S. surged 237% in Sep–Nov 2025 vs. the 2023-24 average — primarily driven by smartphones that are not subject to additional U.S. tariffs. [4]
2. Pearls and precious stones exports to the U.S. declined the most sharply among tariff-hit commodities — by 78.5%. [4]
3. India's total exports (merchandise + services) in November 2025 were estimated at USD 73.99 billion, a growth of 15.52% over November 2024. [1]
4. Export Promotion Mission (EPM) carries an outlay of ₹25,060 crore spanning FY 2025-26 to FY 2030-31. [5]
5. India's textile exports grew 10% to 111 countries in April–September 2025, reaching USD 8,489.08 million. [1]
6. The nodal ministry for India's Foreign Trade Policy is the Ministry of Commerce & Industry; operational arm is DGFT. [5]
7. The statutory basis for FTP is the Foreign Trade (Development & Regulation) Act, 1992.
8. India–U.S. trade deal (Feb 2026) cut tariffs on USD 10.03 billion of Indian exports to zero, and on USD 30.94 billion from 50% to 18%. [3]
9. Drugs & pharmaceuticals grew 20.19% in export value in 2025, making it one of the top-performing categories. [1]
10. India's cumulative exports (Apr–Jul 2025) were USD 277.63 billion, a 5.23% growth over the same period in 2024. [2]
11. India's FTP 2023 targets $2 trillion in exports by 2030 (merchandise + services combined).
12. The "two-path" export formula involves: (a) deepening ties with existing partner countries; (b) exploring new/alternative export destinations — both triggered by U.S. tariff imposition in 2025. [4]
13. Gold jewellery exports to the U.S. declined 39% in Sep–Nov 2025 vs. 2023-24 baseline. [4]

8. Mains Relevance

GS Paper: GS-III (Indian Economy — External Sector)

Specific Syllabus Headings:

• "Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment."
• "Effects of liberalisation on the economy, changes in industrial policy and their effects on industrial growth."
• "Infrastructure: Energy, Ports, Roads, Airports, Railways." (logistics link)
• "Government Budgeting." (EPM, RoDTEP fiscal cost)

Plausible Mains Question Stems:

1. "India's aggregate export growth in 2025 masked significant sectoral divergence caused by U.S. tariffs. Examine the commodity-wise impact and evaluate India's two-path diversification response." (GS-III, 15 marks)
2. "Critically assess the role of Production Linked Incentive (PLI) schemes in reshaping India's export composition with reference to electronics and telecommunications." (GS-III, 10 marks)
3. "Free Trade Agreements are both an opportunity and a risk for India's export sector. Discuss in the context of India's recent bilateral trade deals." (GS-III, 15 marks)

9. Related Topics to Study Next

10. Common Errors / Trap Areas

1. Confusing aggregate with sectoral growth: Candidates often cite total export growth (positive) without noting that several tariff-hit commodities declined sharply — the smartphone surge masked the sectoral losses. [4]
2. Misattributing the EPM to NITI Aayog: The Export Promotion Mission is under the Ministry of Commerce & Industry, not NITI Aayog or Finance Ministry.
3. GSP vs. Tariff Imposition: The U.S. withdrew India's GSP benefits in 2019 (a preference removal) — distinct from the additional 50% tariffs imposed in 2025 (an active punitive measure). These are two separate events with different legal bases.
4. Conflating CEPA and FTA: A CEPA (Comprehensive Economic Partnership Agreement) covers goods, services, investments, and IPR; a basic FTA may cover only goods. UPSC questions sometimes test this distinction (e.g., India–UAE is a CEPA, not a plain FTA).
5. "New markets" ≠ only developing countries: The article and data show new/deepened markets include Germany, France, Italy, Belgium — advanced economies — not just Global South destinations. Aspirants should not assume export diversification is synonymous with South–South trade.