SYLLABUS

GS-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: Recently, NITI Aayog released the 7th edition of the Trade Watch Quarterly for Quarter 3 of FY26 (October-December 2025), providing a comprehensive assessment of global and domestic trade trends amid evolving global conditions.

About Trade Watch Quarterly

• Trade Watch Quarterly is a periodic analytical report that evaluates India’s merchandise and services trade performance across quarters.
• It provides insights into sectoral trends, global demand patterns, and India’s positioning in international trade and global value chains.
• The report also includes thematic analyses of key sectors, offering policy-relevant recommendations to enhance competitiveness.
• It serves as an important tool for evidence-based policymaking and trade strategy formulation.

Key Highlights and Trends

• Resilient but Mixed Trade Performance
  • India’s trade performance in Q3 FY 2025–26 reflects a mixed yet resilient trend, with merchandise exports growing modestly by 1.6% (to $110.48 bn), while imports increased at a faster pace of 7.9% (to $202.33 bn), leading to a widening trade deficit.
  • In contrast, services exports recorded strong growth of around 7.8% (to $111.2 bn), maintaining a significant trade surplus that supports overall external stability.
  • Overall trade (goods + services) recorded positive growth of about 5.6% year-on-year, indicating sustained external sector activity.
• Sectoral Focus: Gems and Jewellery
  • The report highlights the gems and jewellery sector as a key pillar of India’s labour-intensive manufacturing ecosystem.
  • The global market size (excluding raw gold) is estimated at around $378 billion, with India contributing about $29.5 billion (7.8% share) in exports.
  • India continues to play a dominant role as a global processing hub, particularly in diamond cutting and polishing.
• Evolving Trade Structure
  • India’s trade patterns indicate stable export composition and changing import dynamics, reflecting deeper integration with global production networks.
  • Herfindahl-Hirschman Index (HHI) trends indicate India’s exports have become more geographically and product-wise diversified, with Asia’s share moderating from ~49% to ~40% alongside rising shares of Europe (~22%) and America (over 25%) during 2017-18 to 2024-25.

Challenges Highlighted

• Persistent Merchandise Trade Deficit: The faster growth of imports relative to exports has resulted in a large merchandise trade deficit (~$91.85 bn in Q3), posing concerns for external sustainability.
• Global Uncertainties: Ongoing geopolitical tensions and macroeconomic volatility pose risks to trade flows and global demand.
• Structural Constraints: The report identifies issues such as limited value addition, dependence on imported inputs, and sectoral concentration as barriers to competitiveness.
• Constraints in Trade Policy and FTA Utilisation: Misalignment of FTAs with sector-specific needs, along with delays in duty refunds and unclear export incentives, constrain liquidity and limit effective use of preferential market access.
• High Cost of Finance and Limited Credit Access: High capital costs and restricted formal credit for MSMEs increase reliance on informal financing, raising production costs and reducing global competitiveness.

Policy Recommendations

• Strengthening Domestic Capabilities: Emphasis is placed on enhancing domestic manufacturing and value addition, particularly in key export sectors.
• Export Diversification: India needs to diversify its export basket and markets to reduce vulnerability to global shocks and demand fluctuations.
• Integration with Global Value Chains (GVCs): The report calls for deeper integration into global value chains to improve competitiveness and expand market access.
• Invest in Skills, Technology, and Cluster Infrastructure: Enhancing productivity and moving up the value chain requires simultaneous investments in skills, technology, and infrastructure.