Rising geopolitical tensions in West Asia could pose significant risks to India’s trade balance and overall macroeconomic stability by widening the current account deficit (CAD) and putting pressure on the rupee, according to a new report released by NITI Aayog on Monday.
The findings were part of the quarterly ‘Trade Watch Oct–Dec (Q3) FY 2025–26’ report, which highlighted how prolonged regional instability could disrupt trade flows and slow down key negotiations with Gulf nations.
West Asia Conflict Slows India-GCC Free Trade Agreement Talks
The report noted that geopolitical uncertainty in West Asia has slowed progress on the proposed India–Gulf Cooperation Council (GCC) Free Trade Agreement (FTA), affecting India’s efforts to diversify markets and strengthen trade access.
The Gulf Cooperation Council includes major Gulf economies that are vital partners for India’s energy imports and exports.
The war in West Asia began on February 28 following military strikes by the United States and Israel on Iran, which subsequently retaliated, escalating regional tensions and disrupting economic activity.
Imports Drive Competitiveness, Says NITI Aayog Vice Chairman
Releasing the report, Suman Bery emphasised that free trade agreements must benefit all participating countries and should not be viewed as one-sided arrangements.
“Let us be clear that FTAs are not a one-way street, nor should they be. While we see them as tools for market access, others also view them the same way,” Bery said.
He added that India’s trade performance has remained resilient despite global challenges, noting that services trade performed strongly during 2025, even amid uncertainty.
Bery also highlighted the importance of imports in driving domestic competitiveness.
“For trade economists, imports matter much more than exports. It is imports that force you to be competitive, so we should welcome imports as much as market access,” he explained.
India Maintains Stable Growth Despite Global Uncertainty
According to the report, India has maintained an average economic growth rate of around 6% over the past 20 years, demonstrating long-term macroeconomic stability even during challenging global conditions.
India’s total merchandise and services trade recorded steady growth during April–December FY2026, rising 5.3% year-on-year to approximately $1.37 trillion.
Free trade agreement partners have emerged as important drivers of India’s integration into global value chains, with their share in total trade steadily increasing.
Focus On High-Value Exports In Gems And Jewellery Sector
The report recommended several reforms to strengthen India’s globally significant gems and jewellery sector, particularly in high-value segments.
India remains a leading player in worked diamonds and jewellery exports. However, the sector remains concentrated among a limited number of markets.
Currently, the United States, United Arab Emirates and Hong Kong account for nearly 73% of India’s exports in this sector.
Meanwhile, over 60% of imports originate from the United Arab Emirates, Switzerland and Hong Kong.
Key Recommendations For The Sector:
- Shift from mid-value to high-value exports
- Promote design-led manufacturing
- Encourage cluster-based research and development
- Expand Geographical Indication (GI)-branded jewellery products
- Focus on lightweight, fashion-oriented, and men’s jewellery
Call For Better Trade Facilitation And Financial Support
The report also suggested steps to improve operational efficiency and financial access for exporters, especially small and medium enterprises (MSMEs).
Suggested Measures Include:
- Strengthening trade facilitation systems
- Improving raw material supply chains
- Expanding access to platforms such as the India International Bullion Exchange (IIBX)
- Introducing collateral-free lending and credit guarantee schemes
- Expanding export factoring and supply-chain financing
Additionally, the report recommended simplifying customs and Directorate General of Foreign Trade (DGFT) procedures to improve ease of doing business.
Why West Asia Matters To India’s Economy
West Asia plays a critical role in India’s economic stability due to its importance in energy imports and trade logistics. Any disruption in shipping routes or trade flows in the region can significantly impact India’s current account deficit, exchange rate stability, and inflation levels.
With regional tensions continuing, policymakers are closely monitoring developments to mitigate potential risks to India’s economic outlook.