India, Aug. 28 -- Trade is a key driver of economic growth. After a prolonged period of disruptions and volatility, global trade regained momentum in 2024, outpacing global output growth for the first time since 2017. India mirrored this trend, with net exports contributing positively to GDP growth during 2024-25. However, there has been renewed volatility, driven by the tariff changes announced by the US since April 2025. The latest executive order by the US, which includes increased tariffs of up to 50% on select Indian goods, is set to take effect from today. As per our estimates, over 44% of India's exports to the US is expected to remain insulated from the tariff hike. This includes products that are exempted from tariffs, such as pharmaceuticals, petroleum products, select electronics, minerals, etc. Additionally, India is expected to remain price-competitive in the US market across 713 products, wherein the unit value price of Indian goods would remain lower compared to the average unit value price of the US' imports of the product, despite the tariffs. These products account for about 13.9% of India's merchandise exports to the US and include products across sectors, such as machine tools, two-wheelers, leather goods, cereals, etc. Besides, the impact of tariff hikes on India's exports in the current year is also likely to be eased by front-loading being undertaken by Indian exporters. In fact, India's exports to the US have grown by over 22.3% year-on-year (y-o-y) during April-June 2025, with eight out of the top 10 exported product categories registering positive export growth during this period. Among these, export of telecom instruments recorded a substantial 191.5% y-o-y growth, while electronic components registered a 35.2% growth y-o-y during the same period. India's exports of marine products, electrical machinery, iron and steel products, and readymade cotton garments also recorded robust double-digit growth during April-June 2025, indicating a possible front-loading to avoid higher tariffs. Nevertheless, the US tariff hike is expected to negatively affect over 4,038 products, where India's price competitiveness is expected to be significantly impacted. India's exports of these products accounted for over 56% of India's merchandise exports to the US in 2024. India's exports of these products could potentially decline by 17.0% during 2025. Some of the sectors expected to be affected include machinery and mechanical appliances, gems and jewellery, textiles, automotive, articles of iron and steel, furniture, and marine products, among others. India's overall exports to the US are likely to sustain a y-o-y growth of 6.1% during 2025 on account of the front-loading. However, there is a need for deeper strategic recalibrations in India's export profile to impart resilience to exports. It would be essential for Indian exporters to consider diversification of export markets to reduce dependence on the US. Indian exporters need to focus on expanding their footprint across other advanced markets in Europe, where there is substantial demand and high untapped potential. It is noteworthy that while the European region accounts for nearly one-third of the global merchandise imports, it represents only 22% of India's exports in 2024. Indian exporters could leverage the recently signed free trade agreement in the region with the European Free Trade Association (EFTA) and the UK, for enhancing market access in Europe. A key reason for relatively limited market access in the European region is the non-tariff measures (NTMs). The EU employs a higher number of NTMs compared to the US, particularly in sectors such as footwear, machinery, electrical equipment, and food-related industries, which create higher compliance costs for exporters. There is a need for supporting Indian exporters, particularly MSMEs, in meeting these compliance costs for enhancing market access. There are also significant opportunities in emerging markets across Asia, Africa, and Latin America that may be targeted by Indian exporters. In fact, as per the IMF, import of goods and services in developing countries is anticipated to increase by 4.8% during 2025-2026, significantly outpacing the expected import growth in advanced economies (at 2.3%). One of the key barriers in accessing these non-traditional markets is the large and growing trade finance gaps. Against this backdrop, innovative trade finance solutions serve as an effective tool for bridging trade finance gaps and leveraging opportunities in non-traditional markets. Beyond market diversification, financing support would also be essential to enable exporters, particularly MSMEs, to offer competitive terms or scale up exports in competitive markets such as the US and Europe in a high-tariff environment. To that end, support in the form of credit enhancement and interest equalisation can help lower financing costs for MSME exporters and aid in sustaining their competitiveness and export volumes. Indian businesses can also strengthen value chain linkages through strategic overseas investments for diversification of the manufacturing base. Recent developments on the tariff front bring out a case for countries to actively pursue this as part of de-risking measures. Amid the rising tariffs, the role of connector economies has gained prominence. As per the IMF, since 2017, enhanced Chinese exports or greenfield investments in a "connector" country has been associated with subsequent growth in the connector country's exports to the US. Accordingly, during the trade war between the US and China, the connector economies helped reduce the impact on trade. On similar lines, India could focus on enhancing value chain linkages with relatively low-tariff countries with the necessary political stability, legal and regulatory environment, and manufacturing capabilities....