IAS/UPSC Coaching Institute  

19 Dec 2025 : Temporary relief

 Editorial 2: Temporary relief

Context

The weakening of the rupee is contributing to a reduction in the trade deficit.

 

Introduction

India’s recent surge in merchandise exports offers short-term reassurance amid global trade turbulence. Strong growth in U.S.-bound exports, despite steep tariffs, highlights exporter resilience. However, these gains rest on fragile foundations, with firms absorbing costs and demand risks rising. The headline numbers, while encouraging, mask deeper structural vulnerabilities that could surface soon.

 

Strong headline numbers, limited comfort

  • India’s merchandise exports rose 19.4% to $38.1 billion in November 2025, the highest November figure in a decade.
  • Exports to the U.S. increased 22.6% year-on-year to $6.98 billion, and were 10.7% higher than October.
  • While reassuring for the government, these gains do not justify complacency.

 

Tariff shock masked by short-term adjustments

  • The recovery in U.S.-bound exports comes despite 50% tariffs, largely because exporters are absorbing the cost.
  • This strategy is driven by the hope that tariffs will be temporary, as losing customers now could be hard to reverse later.
  • However, this buffer is unsustainable, especially if tariffs persist.

 

Stress on MSMEs and supply chains

  • A large share of exporters are MSMEs in labour-intensive sectors, with limited capacity to absorb prolonged losses.
  • A depreciating rupee offers only partial relief, as India’s tariff disadvantage vis-à-vis competitors remains large.
  • Supply chain reorientation takes time, and early signs point to a drop in orders for January.

 

Trade deficit shrinkage signals weak demand

  • The trade deficit narrowed mainly because imports fell 1.9% to $62.7 billion.
  • Given India’s still-limited domestic capabilities, falling imports likely reflect slackening demand, not strength.
  • Coming soon after GST rate cuts, this trend warrants close monitoring.

 

Policy response: urgency over assurances

  • The government’s Export Promotion Mission acknowledges exporter distress, but detailed schemes are pending and must be fast-tracked.
  • Credit guarantee schemes, proven effective during COVID, could help more than a loan repayment moratorium.
  • With tariff resolution dependent on the unpredictable U.S. President, the prudent course is to prepare for the worst while hoping for relief.

 

Conclusion

Sustaining export momentum will require more than temporary resilience. Prolonged tariff pressures, weakening import demand, and stress on MSMEs call for swift, targeted policy action. While a resolution of trade tensions may ease pressures, India must strengthen export support mechanisms and prepare for uncertainty. Prudence lies in balancing optimism with contingency planning.