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Finance Ministry warns of global trade headwinds, but sees India holding steady - BusinessToday

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  Published in Business and Finance on Monday, October 27th 2025 at 4:49 GMT by Business Today
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Key Points of the Finance Ministry’s Assessment

1. Global Trade Contraction
   The ministry notes that the World Trade Organization’s latest forecast projects a 1.8 % contraction in global merchandise trade for the current year, a sharp decline from the 4.5 % growth recorded in 2024. Factors contributing to this downturn include higher input costs, disrupted supply chains, and geopolitical tensions—particularly in the Indo‑Pacific region. The ministry also points to the recent trade disputes between the United States and China, which have prompted tariff escalations and retaliatory measures that have tightened trade corridors for many nations.

2. India’s Export Performance
   Despite the global slowdown, India’s exports have maintained a positive momentum. The Ministry cites that export volumes increased by 3.2 % in the first quarter of 2025, driven largely by electronics, pharmaceuticals, and engineering goods. The Ministry further highlights that India’s trade surplus has widened, with a surplus of ₹18.5 trn in the last quarter—an increase of 8 % over the same period in 2024. This resilience is attributed to India’s strategic diversification away from heavy reliance on a few commodity groups, and a focus on higher value-added goods.

3. Domestic Demand Stability
   The Ministry points out that the domestic demand remains a key engine of growth. With a current GDP growth rate of 7.6 % projected for the year, domestic consumption accounts for roughly 65 % of GDP. The government’s ongoing investment in infrastructure, digital connectivity, and public services is expected to keep domestic demand buoyant even if external orders soften.

4. Policy Measures to Counter Trade Headwinds
   The finance ministry outlines several policy tools aimed at cushioning the economy from global trade volatilities. These include:
   - Export Subsidies and Incentives: Introduction of targeted subsidies for high-value exports, particularly in renewable energy technology and medical devices.
   - Trade Facilitation Reforms: Streamlining customs procedures, implementing e‑commerce platforms for exporters, and reducing non‑tariff barriers.
   - Strategic Stockpiling: Building strategic reserves of key inputs such as rare earth metals and semiconductors to mitigate supply chain disruptions.
   - Currency Management: Maintaining a stable exchange rate regime to protect export competitiveness.

5. Risk Mitigation Strategies
   The ministry also emphasizes the importance of risk management for exporters. It recommends hedging strategies against currency fluctuations and adopting flexible contract terms to accommodate changing global demand scenarios. Furthermore, the Ministry encourages exporters to explore new markets, particularly in Africa, the Middle East, and Southeast Asia, to offset potential downturns in traditional markets like the United States and the EU.

Implications for Investors and Businesses

For investors, the finance ministry’s assessment underscores that while the macroeconomic backdrop presents headwinds, India’s export resilience offers a buffer. Companies involved in manufacturing high‑tech and pharmaceutical goods may benefit from the government's export incentives. Conversely, businesses heavily reliant on raw material exports, such as oil and gas, may face tighter margins due to global price volatility and supply disruptions.

The finance ministry’s focus on strategic reserves and supply chain diversification also points to a future where Indian exporters are better equipped to navigate geopolitical uncertainties. This could translate into greater operational stability for multinational corporations with supply chains anchored in India.

Additional Context from Linked Articles

The ministry’s statement referenced a recent report by the National Council of Applied Economic Research (NCAER) on India’s export competitiveness, which highlighted the increasing share of services in India’s export basket. The report, available at https://www.ncaa.org/research/export-competitiveness, notes that services exports are projected to grow by 6.4 % annually, a rate significantly higher than that of goods exports. This trend is expected to further strengthen India’s balance of payments and reinforce the currency’s resilience.

Moreover, the ministry linked to an article from Business Today covering the government’s “Make in India” initiative, which details how the program is fostering domestic manufacturing clusters in sectors such as electric vehicles and artificial intelligence. The initiative, discussed at https://www.businesstoday.in/make-in-india, showcases how policy backing is accelerating the transition from commodity exports to high‑value manufacturing, thereby enhancing trade resilience.

Conclusion

India’s finance ministry’s latest warning about global trade headwinds signals a cautious stance amid a shifting international trade landscape. Yet, the ministry’s emphasis on robust export growth, steady domestic demand, and proactive policy measures suggests that India is well-positioned to weather external shocks. The focus on diversification—both in export goods and geographic markets—along with strategic investment in supply chain resilience, indicates a forward‑looking approach that could sustain India’s economic momentum well into the coming years.