India’s Low Goods Exports: A Silver Lining Amid Trade Tensions
India’s economic landscape is facing significant challenges as global trade tensions escalate, particularly with the United States. However, a recent report from Morgan Stanley suggests that India’s relatively low goods exports to the U.S. may provide a buffer against these pressures. The report highlights India’s strengths in services exports and domestic policy support, positioning the country favorably in the current economic climate.
Low Goods Exports Offer Resilience
For years, India has struggled with its manufactured goods exports, lagging behind other nations. However, Morgan Stanley’s report indicates that this very weakness could be a strength in the face of rising trade tensions. The report, authored by Chetan Ahya and his team, emphasizes that India’s low goods exports to GDP ratio makes it less vulnerable to the adverse effects of tariffs and trade disputes.
The report states, “Trade tensions will likely remain a drag on Asia’s growth outlook. However, India is well-positioned due to its low goods exports, strong services exports, and supportive domestic policies.” This perspective suggests that while other Asian economies may suffer more from trade disruptions, India’s economic structure may help it weather the storm.
Economic Slowdown and Recovery Path
India’s recent economic slowdown can be attributed to a combination of stringent fiscal and monetary policies. Despite stable macroeconomic indicators, the government’s contraction in spending—accounting for 28% of GDP—has led to diminished growth rates. The report notes that government spending contracted by 6% year-on-year at its lowest point in July 2024, although it has since shown signs of recovery.
Looking ahead, Morgan Stanley anticipates a gradual recovery driven by several factors. Recent data indicates a resurgence in goods and services tax (GST) revenue, which has accelerated to an average of 10.7% in early 2025. The report outlines key drivers for recovery, including increased government capital expenditure, easing monetary policies, and a moderation in food inflation, which is expected to boost household incomes.
The Role of Services Exports
One of the standout features of India’s economy is its robust services sector, which has shown resilience even during global trade downturns. Morgan Stanley asserts that while goods exports may face contraction, services exports typically remain stable. This stability is crucial as it supports urban job growth and private consumption, which are vital for economic recovery.
The report highlights that India’s services exports are not only defensive but also expanding their market share. This trend is expected to continue, providing a counterbalance to the potential negative impacts of trade tensions. As the global economy evolves, India’s ability to leverage its services sector could play a pivotal role in sustaining economic growth.
Navigating Trade Risks with the U.S.
Despite the potential advantages, India is not entirely insulated from the risks associated with U.S. tariffs. The Morgan Stanley report points out that India faces significant exposure to potential tariff escalations, particularly concerning its pharmaceutical exports. These exports, which constitute a small percentage of India’s total exports, have been identified as potential targets for tariffs by the U.S. administration.
While a trade agreement between India and the U.S. appears feasible by fall 2025, the negotiation process is expected to be complex. The report emphasizes that while India is exposed to direct tariff risks, its low goods trade orientation and capacity to generate domestic demand may mitigate the indirect effects of heightened policy uncertainty on corporate confidence and capital expenditure.
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