India's merchandise exports are undergoing a diversification, with a noticeable deceleration in shipments to the United States since July 2025. Despite this slowdown, overall exports have increased, propelled by enhanced trade with the UAE, China, and other emerging markets. This shift indicates a strategic realignment in India's trade relationships, reducing reliance on a single market and enhancing resilience against regional economic shocks.
According to the latest Ecowrap report by SBI Research, India's total merchandise exports experienced a 2.9% year-on-year increase, reaching $220 billion in the April-September period of FY26, compared to $214 billion in the previous year. While exports to the United States grew by 13% to $45 billion during the same period, September witnessed a contraction of approximately 12% year-on-year, signaling a potential slowdown influenced by tariff disputes and geopolitical tensions. The share of the United States in India's exports has been steadily declining since July 2025, dropping to 15% in September from 19.8% in FY25.
Several factors contribute to this diversification. Rising tariff pressures and global market volatility have prompted India to widen its export destinations. The Indian government has also been proactive in supporting exporters, approving ₹45,060 crore, including ₹20,000 crore in credit guarantees on bank loans. This support aims to enhance the competitiveness of Indian goods and facilitate trade diversification.
The SBI Research report identifies specific sectors and destinations driving this export diversification. Marine products and readymade garments (cotton RMG) have shown healthy growth in the first half of the fiscal year. The UAE, China, Vietnam, Japan, and Hong Kong have gained traction across key product categories. Bangladesh, Sri Lanka, and Nigeria have seen increased shares in cotton fabrics and made-up textiles.
Interestingly, the report suggests the emergence of rerouted trade flows, where countries are purchasing Indian goods for re-export to the United States. For example, Australia's share in US imports of precious stones rose to 9% in January–August 2025 from 2% the previous year, while Hong Kong doubled its share to 2%. This indirect trade highlights the adaptability of Indian exporters in navigating complex global trade dynamics.
Despite a projected current account deficit (CAD) of 1-1.3% for the full fiscal year, SBI Research maintains that India's external sector is well-positioned to withstand global shocks. Strong export performance, a moderate CAD, stable capital inflows, and healthy foreign exchange reserves underpin the currency's long-term stability. The report anticipates the CAD will narrow in the final quarter of FY26, helping to stabilize external balances.
In conclusion, India's export story is evolving, marked by diversification and resilience. While the United States remains an important trading partner, India is strategically expanding its reach to emerging markets, mitigating risks and capitalizing on new opportunities. Government support, coupled with the adaptability of Indian exporters, is expected to further strengthen export growth in the coming years.
