The Ministry of Finance has warned that “rising geopolitical tensions and the potential reintroduction of protectionist measures in response to global overcapacity serve as headwinds to trade growth,” even as India continues to show strong economic momentum.
The caution comes in the government’s Monthly Economic Report for September 2025, which highlights both global uncertainties and India’s domestic resilience.
According to the report, trade policy uncertainty has reached unprecedented levels. The Trade Policy Uncertainty (TPU) Index surged 386.4% year-on-year in Q3 2025 — the second-highest reading since 1960, underscoring volatility in global trade policy.
Although the index fell 32% quarter-on-quarter as negotiations advanced and supply chains adjusted, the report cautions that the global trade environment remains fragile.
Despite these challenges, global trade has shown some resilience. UNCTAD data cited in the report indicates total trade grew 2.5% quarter-on-quarter in Q2 2025, led by developing countries where exports rose 3% and imports 6%, outpacing developed economies.
In this turbulent environment, India has remained a bright spot. The IMF raised India’s FY26 growth forecast to 6.6%, while the Reserve Bank of India (RBI) expects 6.8%, driven by strong domestic demand and improving supply-side conditions.
Inflation eased to 1.54% in September, allowing the RBI to maintain the repo rate at 5.5% with a neutral stance.
India’s trade performance has been robust, with total exports (goods and services) up 4.4% year-on-year in H1 FY26 to $413.3 billion. Services exports hit a record $193.2 billion, helping narrow the overall trade deficit to $59.5 billion, even as petroleum exports fell 16.4%.
With structural reforms such as GST 2.0, the Rs 11,000 crore PRIP scheme, and continued fiscal prudence, the report concludes that India’s growth trajectory remains strong, though rising protectionism, weather shocks, and moderating credit growth could test its resilience ahead.
