Geopolitical tensions in West Asia could widen India’s current account deficit and pose risks to macroeconomic stability, NITI Aayog said in its latest quarterly trade report.
In its ‘Trade Watch Oct-Dec (Q3) FY 2025-26’ report released on Monday, the think tank said the ongoing conflict, which began on February 28 with US and Israeli strikes on Iran followed by retaliation, has put pressure on trade flows and the exchange rate.
The report also noted that instability in the region has slowed progress on the India-Gulf Cooperation Council free trade agreement, affecting efforts to diversify trade and improve market access.
Speaking at the release, NITI Aayog Vice Chairman Suman Bery said trade agreements must be viewed as mutually beneficial. “FTAs are not a one-way street,” he said, adding that while India seeks market access, partner countries do the same.
Bery highlighted that India’s merchandise trade has remained resilient despite global uncertainty, while services trade performed strongly through 2025. He also emphasised the importance of imports in driving competitiveness.
India’s total merchandise and services trade rose 5.3 percent year-on-year to $1.37 trillion during April to December FY26, reflecting steady growth.
The report recommended structural changes in key sectors, particularly gems and jewellery, urging a shift from mid-value to high-value exports through design-led manufacturing and stronger research and development. It also called for improved access to raw materials, better trade facilitation, and expanded financial support for MSMEs through measures such as collateral-free lending and credit guarantees.
Further suggestions included simplifying customs and DGFT procedures and improving data systems for more effective policy decisions.
India remains a major global player in the gems and jewellery sector, especially in worked diamonds. However, trade in the sector is concentrated, with the United States, the UAE, and Hong Kong accounting for about 73 percent of exports, while imports are largely sourced from the UAE, Switzerland, and Hong Kong.
The report said free trade agreement partners are becoming increasingly important in India’s trade integration, reflecting deeper economic linkages despite ongoing global uncertainties.