Global trade realignment: India’s export push faces rising imports, China challenge

A trade route is disrupted. Oil supplies are redirected. US tariffs unsettle exporters, while Chinese goods gain ground across global markets. As Europe’s trade surplus slips into deficit and India’s imports grow faster than its exports, a new question emerges: can India turn this global upheaval into a manufacturing advantage, or will a rising import bill undermine the gains?

The numbers reveal the challenge. India’s goods exports grew 4.4% year-on-year in January-May 2026, while imports rose 13%, widening the trade deficit by 28%, according to the McKinsey Global Institute’s September 2026 trade update. For a country seeking to establish itself as a global manufacturing hub, the gap is a warning that expanding production does not automatically translate into stronger export performance.

The opportunity is real, but so are the risks. India can benefit from companies diversifying supply chains and buyers seeking alternatives to disrupted Gulf energy supplies. Yet dependence on imported crude, electronics components and Chinese industrial inputs leaves the economy exposed to geopolitical shocks and changing trade policies.

India’s exports are growing, but imports are rising faster 

India’s goods trade | January-May 2026

• Exports: Up 4.4% year-on-year 
• Imports: Up 13% year-on-year 
• Trade deficit: Widened 28% year-on-year 

The gap between export and import growth is the central concern. India has expanded manufacturing and overseas shipments, but purchases from abroad are increasing much faster than sales to international markets.

Not all imports are a weakness. Machinery, electronics components and industrial inputs can support domestic production and future exports. Gold imports serve a different purpose, while higher energy costs can widen the trade deficit without necessarily strengthening productive capacity.

The key is whether India can turn imported inputs into finished goods with greater domestic value addition and stronger export potential.

Strait of Hormuz crisis: An opportunity for Indian refiners? 

Disruptions to shipping through the Strait of Hormuz have exposed the vulnerability of global energy supply chains. For India, a major crude importer, the consequences extend beyond oil prices to freight costs, sourcing decisions and the availability of refined fuels.

McKinsey found that the Middle East’s share of India’s total imports fell by 6.4 percentage points in January-May 2026, as crude sourcing shifted towards Russia, Brazil and other suppliers.

Meanwhile, buyers in ASEAN and Africa turned to Indian refined petroleum products amid Gulf supply disruptions, creating opportunities for Indian refiners to serve markets seeking alternative supplies.

The gains, however, are not guaranteed. Higher crude prices, shipping costs and insurance premiums can eat into refining margins and increase the overall import bill. India’s ability to benefit will depend on the cost of securing alternative supplies and the profitability of refined-fuel exports.

China’s growing role exposes manufacturing weakness 

India’s trade with China rose 24% to $69 billion in January-May 2026, according to McKinsey, with imports including telecommunications components, batteries and other manufacturing inputs driving much of the increase.

This highlights a contradiction in India’s manufacturing ambitions. Chinese components help Indian factories produce goods for domestic consumption and export, but dependence on imported inputs can leave manufacturers vulnerable to supply disruptions and persistent trade imbalances.

Europe faces a related challenge. Its manufacturers are under pressure from Chinese competition in automobiles, electric vehicles and industrial goods. The EU’s goods trade with countries outside the bloc shifted from a €58 billion surplus in January-April 2025 to a €2.4 billion deficit in the corresponding period of 2026.

India’s task is different: it must build manufacturing capacity while competing with established Chinese producers. Simply restricting imports will not solve the problem. Domestic suppliers need to become more competitive on cost, quality and scale.

US tariffs & shifting demand complicate India’s export outlook 

The US remains a major market for Indian goods, but trade flows are changing. McKinsey found that India’s total goods trade with the US edged down 0.5% to $63 billion in January-May 2026. Exports fell 11%, while imports from the US rose 23%.

The decline in exports was partly linked to weaker pharmaceutical shipments after unusually strong exports in 2025, as well as weakness in diamonds. Smartphone exports rose modestly following a substantial increase the previous year.

These movements show how tariffs, changing inventories and demand fluctuations can affect export performance. Europe has experienced similar volatility as American buyers pulled back after bringing forward purchases in anticipation of tariff increases.

For India, diversifying export destinations across Europe, ASEAN and Africa could reduce dependence on individual markets. But new trade relationships will deliver lasting gains only if Indian products remain competitive.

Electronics, automobiles & AI offer a route forward 

Despite the pressures, several manufacturing sectors provide reasons for optimism.

• Electronics: Exports grew 11% in January-May 2026, but imports rose 27%. The figures highlight the need to build domestic capabilities beyond assembling finished products, particularly in components and other critical inputs. 
• Transportation equipment: Exports increased 14% during the period, supported by products including storage tankers, electric vehicles and motorcycles. This points to opportunities for Indian manufacturers to expand their international reach. 
• Artificial intelligence: The global AI infrastructure boom is driving demand for semiconductors, servers and data-processing equipment. India could benefit by expanding electronics manufacturing and technology-related exports, although capturing more value will require stronger domestic capabilities in components and advanced manufacturing. 

The common thread is domestic value addition. Higher production and exports will have a greater economic impact if Indian manufacturers can source more inputs locally while maintaining internationally competitive prices and quality.

September trade data show the challenge persists 

India’s merchandise trade deficit widened to $30.21 billion in September 2026, compared with $26.86 billion in August, according to government trade data reported on October 15.

India’s merchandise trade | September 2026

• Exports: $44.40 billion 
• Imports: $74.61 billion 
• Trade deficit: $30.21 billion 

The deficit was wider than in August but narrower than the $33 billion recorded in September 2025. The distinction matters: the monthly increase signals continued pressure, while the year-on-year comparison suggests a more favourable picture.

Exports of petroleum products, electronics, engineering goods and other products provided support. Trade agreements with major partners could also improve market access, depending on their terms and implementation.

What India needs to do next 

The global trade realignment is being driven by tariffs, geopolitical risks, energy disruptions and technology investment. India can benefit, but three priorities stand out:

• Diversify export markets: Expand access to Europe, ASEAN and Africa to reduce reliance on individual destinations. 
• Deepen domestic supply chains: Build local capabilities in electronics, batteries and industrial components to increase value addition. 
• Strengthen energy resilience: Diversify crude suppliers and logistics while managing exposure to global oil prices. 

India must also distinguish between imports that support future production and those that mainly increase the import bill. The former can help build export capacity; the latter may add to external pressure without delivering equivalent industrial gains.

The global trade realignment is opening opportunities for India in refined petroleum, electronics, automobiles and other manufactured goods. But rising imports and dependence on Chinese components could limit the gains.