7th Edition of Trade Watch Quarterly Report 

7th Edition of Trade Watch Quarterly Report 

Why in News?

Recently, the 7th Edition of Trade Watch Quarterly Report was released by NITI Aayog. The report presents a data-driven assessment of India’s Q3 FY2025–26 trade performance.

Highlights of 7th Edition Trade Watch Quarterly (Q3 FY2025–26)

• Global Trade: Global trade in 2025 remained resilient despite uncertainty. Goods trade grew 8% YoY in Q3, while services expanded faster, led by digitally delivered services. This reflects structural global shifts toward services-driven trade growth and digitalisation.

• India’s Total Trade Growth: India’s total trade performance remained steady. Total merchandise and services trade reached $1.37 trillion during April–December 2025, growing 5.3% year-on-year. 
  • Exports increased by 5.4%, slightly higher than imports at 5.2%, showing balanced growth. 
  • The most important support came from the services surplus, which grew by 12.8%, helping to stabilise the overall external balance.
• Quarterly Trade Performance: In Q3 FY2025–26, trade trends showed divergence between goods and services. Merchandise exports grew modestly by 1.6% to $110.48 billion, while imports increased sharply by 7.9% to $202.33 billion. 
  • In contrast, services exports rose strongly by 7.8% to $111.2 billion, and services imports grew slowly at 2.8% to $53.7 billion. This highlights that services are the main strength of India’s trade sector.
• Trade Balance Structure: India continues to face a high merchandise trade deficit, as imports are significantly higher than exports.
  • However, this is balanced by a strong services surplus, which plays a critical role in maintaining external sector stability. 
• Export Composition: India’s export basket remains diversified and stable. The major sectors include electrical machinery, mineral fuels, nuclear reactors, gems and jewellery, and iron and steel. 
  • Growth is mainly driven by smartphones, engineering goods, and vehicle exports, reflecting increasing industrial capability and diversification.
• Import Composition: Imports are still highly concentrated in a few key sectors. These include mineral fuels, gold, electrical machinery, and capital goods. 
  • A notable trend is the continued surge in fertiliser imports, which shows India’s dependence on external inputs for agriculture and industry.
• Trade Direction Changes: The direction of trade is evolving slowly. Spain has replaced Singapore as the 10th largest export destination, while Japan has replaced Indonesia as the 10th largest import source. 
  • Traditional markets such as the United States and Europe (especially the Netherlands) continue to dominate, but new regions are emerging.
• Regional Trade Dynamics: Regional trends show diversification. Exports to Northeast Asia grew sharply by 33.5%, mainly due to increased trade with China and Hong Kong.
  • On the import side, West Africa recorded a strong growth of 59.8%, driven by fertilisers, cotton, and natural pearls. This indicates new trade linkages beyond traditional partners.
• Trade Diversification: The report uses the Herfindahl-Hirschman Index (HHI) to measure concentration. It shows that India’s exports are becoming more diversified in terms of both products and regions. 
  • Asia’s share declined from around 49% to 40%, while Europe’s share increased to about 22% and America’s to over 25%.
  • However, imports remain concentrated, especially in fuel and electronics, creating vulnerability.
• Trade Complementarity: India’s Trade Complementarity Index (TCI) has improved at the HS-2 level, driven by sectors like engineering goods, petroleum, chemicals, and electronics. 
  • However, at the HS-6 level, it remains stable. This means India’s exports align with global demand only in select sectors, not across all high-value segments.
• FTA Integration: Free Trade Agreements are playing a growing role. The share of trade with FTA partners increased sharply from 4.6% in 2006 to 28.8% in 2024. 
  • Most FTAs are with Asian countries, showing deeper regional integration and improved market access.
• Gems and Jewellery Global Position: The report provides a detailed thematic analysis of the gems and jewellery sector. 
  • Globally, the sector size is $1.05 trillion including raw gold, but excluding raw gold, it is $378 billion. 
  • India’s exports stand at $29.5 billion, giving it a 7.8% global share.
• Export Structure in Gems Sector: India’s exports are highly concentrated. Diamonds and gold jewellery together account for 54.8% of global demand ($207.3 billion).
  • India exports $26.7 billion in these segments, giving it a strong 13% share.
  • However, in the remaining segments, India’s share is only 2%, showing limited diversification.
• Comparative Advantage: India has a strong Revealed Comparative Advantage (RCA) of 5.77 in diamonds, contributing 16.9% of global demand ($12.3 billion). This highlights India’s global leadership in diamond processing and polishing.
• Declining Global Share: India’s share in global gems and jewellery exports (including raw gold) has declined from 6.1% in 2015 to 2.9% in 2024. 
  • This decline is due to changing global demand patterns, especially the rise in demand for raw gold.
• Trade Concentration in Sector: The sector is highly concentrated geographically. US, UAE, and Hong Kong account for 70–75% of exports, while UAE, Switzerland, and Hong Kong supply over 60% of imports. 
• Demand Trends: Global demand is changing. Many traditional products have seen declining or stagnant demand, while raw gold demand increased by 14.6%.
  • Emerging segments like platinum, silver, and scrap metals are growing at 6–7% CAGR, with a market size of $103 billion.
• Domestic Importance: The sector is very important for India’s economy. It contributes 2.2% of manufacturing output, 7% of GDP, and provides employment to about 50 lakh workers. It is also the third largest import item and fourth largest export item.
• Structural Issues: Despite diversification, the Trade Complementarity Index declined from 53.8 in 2001 to 25.1 in 2024, showing poor alignment with global demand.
  • Imports remain heavily dependent on gold, indicating structural weakness.
• Global Competitors: Countries like Switzerland and Hong Kong dominate despite lacking raw materials. 
  • Their success is due to strong financial systems, refining capacity, and trade-friendly policies, which India needs to emulate.
• Key Challenges: The report identifies multiple structural constraints in the gems and jewellery sector. 
  • Exports face seasonality in demand from key markets like the US, UAE, and Hong Kong, making earnings volatile.
  • There is a persistent credit gap, as financial institutions show limited trust due to lack of formalised data on value addition and employment. 
  • The sector also suffers from inadequate granular data in national accounts, affecting policy design. 
  • A major limitation is the low capability in designing low-carat jewellery, even as global demand shifts in that direction. 
  • High import dependence on gold and geographical concentration of trade increase vulnerability to external shocks.
• Policy Recommendations: The report suggests targeted reforms to enhance competitiveness. 
  • It emphasises improving capacity utilisation of specialised clusters and promoting GI-based branding for global visibility. 
  • Inclusion of consignment exports under FTA benefits can improve market access.
  • Strengthening data reporting systems and providing credit guarantees with interest subvention can address financing issues. 
  • The report also recommends establishing centres of excellence to boost design, innovation, and skill development, enabling a shift towards high-value and diversified exports.