India’s economy maintained its momentum in July 2025 even as tariff disputes and geopolitical tensions added uncertainty to global trade flows. The Finance Ministry’s Monthly Economic Review observed that strong domestic demand and sound macroeconomic fundamentals continued to support growth, while cautioning that protectionist trends abroad were beginning to weigh on India’s trade outlook.
The report noted that global trade had already started to feel the effects of higher duties and policy uncertainty, which were dampening business sentiment. The World Trade Organization revised its forecast for global merchandise trade growth in 2025 to 0.9%, down from 2.7% earlier, and said that the full impact of tariff hikes would likely be more visible in the second half of the year and in 2026.
The Trade Policy Uncertainty Index rose 17% in July, reflecting greater concern among firms and investors. With the United States being a major destination for Indian exports, the review highlighted that any prolonged tariff pressures there could gradually affect India’s shipments.
India’s external sector, however, remained steady. Exports of goods and services rose 4.5% year-on-year in July to $68.3 billion. Merchandise exports grew 7.3%, led by a strong 12.7% rise in non-petroleum, non-gems and jewellery exports. Services exports also increased, albeit modestly, by 1.4%. Imports grew by 6.1% to $80 billion, reflecting firm domestic consumption, with non-oil imports rising 6.9%. This widened the trade deficit to $11.7 billion from $10.1 billion a year earlier.
To address tariff-related challenges, the government followed a calibrated trade policy. The India-UK Comprehensive Economic and Trade Agreement (CETA), which came into force in July, was expected to double bilateral trade by 2030 while balancing liberalisation with protection for sensitive sectors. The report also pointed to the recently concluded India-EFTA agreement and ongoing negotiations with the EU, US, and others as part of a broader effort to diversify markets and strengthen supply chains.
On the domestic front, high-frequency indicators pointed to strong activity. E-way bill generation reached a record, manufacturing PMI rose to a 16-month high, and services PMI continued to signal expansion. Rural and urban consumption trends were supported by higher FMCG sales, buoyant UPI transactions and steady automobile demand. A favourable monsoon added to rural spending power. Inflation eased significantly, with headline CPI falling to 1.6% in July on account of food price softness, staying below the RBI’s lower tolerance band. According to the ministry, this provided more flexibility for fiscal and monetary measures to sustain growth.
Even as the outlook remained positive, the review flagged risks from tariff developments. While the immediate effect of recent U.S. tariffs appeared limited, their broader impact on supply chains and investment flows could be felt over time. At the same time, India entered this phase from a position of relative strength. The sovereign rating upgrade by S&P to BBB, a continued emphasis on capital expenditure, and forthcoming reforms—including GST changes and state-level deregulation—were expected to attract fresh investment, reduce borrowing costs and bolster competitiveness.
The ministry concluded on a balanced note. Tariff uncertainty and global headwinds, it said, were challenges that could not be ignored, but India’s resilient domestic demand, diversified trade strategy and reform initiatives provided a strong foundation for navigating this environment and sustaining growth.
The report noted that global trade had already started to feel the effects of higher duties and policy uncertainty, which were dampening business sentiment. The World Trade Organization revised its forecast for global merchandise trade growth in 2025 to 0.9%, down from 2.7% earlier, and said that the full impact of tariff hikes would likely be more visible in the second half of the year and in 2026.
The Trade Policy Uncertainty Index rose 17% in July, reflecting greater concern among firms and investors. With the United States being a major destination for Indian exports, the review highlighted that any prolonged tariff pressures there could gradually affect India’s shipments.
India’s external sector, however, remained steady. Exports of goods and services rose 4.5% year-on-year in July to $68.3 billion. Merchandise exports grew 7.3%, led by a strong 12.7% rise in non-petroleum, non-gems and jewellery exports. Services exports also increased, albeit modestly, by 1.4%. Imports grew by 6.1% to $80 billion, reflecting firm domestic consumption, with non-oil imports rising 6.9%. This widened the trade deficit to $11.7 billion from $10.1 billion a year earlier.
To address tariff-related challenges, the government followed a calibrated trade policy. The India-UK Comprehensive Economic and Trade Agreement (CETA), which came into force in July, was expected to double bilateral trade by 2030 while balancing liberalisation with protection for sensitive sectors. The report also pointed to the recently concluded India-EFTA agreement and ongoing negotiations with the EU, US, and others as part of a broader effort to diversify markets and strengthen supply chains.
On the domestic front, high-frequency indicators pointed to strong activity. E-way bill generation reached a record, manufacturing PMI rose to a 16-month high, and services PMI continued to signal expansion. Rural and urban consumption trends were supported by higher FMCG sales, buoyant UPI transactions and steady automobile demand. A favourable monsoon added to rural spending power. Inflation eased significantly, with headline CPI falling to 1.6% in July on account of food price softness, staying below the RBI’s lower tolerance band. According to the ministry, this provided more flexibility for fiscal and monetary measures to sustain growth.
Even as the outlook remained positive, the review flagged risks from tariff developments. While the immediate effect of recent U.S. tariffs appeared limited, their broader impact on supply chains and investment flows could be felt over time. At the same time, India entered this phase from a position of relative strength. The sovereign rating upgrade by S&P to BBB, a continued emphasis on capital expenditure, and forthcoming reforms—including GST changes and state-level deregulation—were expected to attract fresh investment, reduce borrowing costs and bolster competitiveness.
The ministry concluded on a balanced note. Tariff uncertainty and global headwinds, it said, were challenges that could not be ignored, but India’s resilient domestic demand, diversified trade strategy and reform initiatives provided a strong foundation for navigating this environment and sustaining growth.
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