India’s merchandise exports have displayed admirable resilience despite the ebb and flow of the West Asia conflict, prompting some justified optimism.However, beneath the headline numbers lie four challenges that could make this fiscal year a difficult one for exports.Value gainsFirst, export resilience may be reflecting value gains rather than volume growth. The on-year growth in dollar value of exports has been heavily influenced by prices. For instance, the 16% growth in exports in the first quarter of this fiscal was driven by a nearly 35% rise in the value of India’s oil exports.This increase stemmed from higher crude oil prices, even as export volumes contracted. The rise in core exports can also be partly attributed to the price effect, as non-energy prices too increased in the wake of the West Asia conflict.With crude oil prices now down from its peaks, the dollar value of India’s petroleum exports could decline. Petroleum products account for roughly 12 per cent of India’s merchandise exports.Smartphones, farm exportsSecond, smartphones and agricultural products—the two large engines of India’s exports—have run into headwinds.The former, which helped sustain overall export growth through successive tariff and geopolitical shocks, is expected to face fresh turbulence during the remaining months of 2026.Smartphones emerged as India’s largest export category within a remarkably short period, supported by the Production Linked Incentive (PLI) scheme, manufacturers’ supply-chain diversification efforts and robust global demand.The share of smartphones in total merchandise exports rose to 6.7 per cent last fiscal from virtually nil in fiscal 2022.However, most industry forecasts point to a slowdown in global smartphone demand due to ‘chipflation’, with shortages of memory chips pushing up device costs.Moreover, these shortages could also affect the production costs of other electronic goods, which account for about 11 per cent of total merchandise exports.Agricultural exports, another key pillar of India’s export resilience, may also be entering a difficult phase, driven largely by domestic factors. Accounting for 10 per cent of merchandise exports, the sector helped offset some of the disruption caused by tariffs and weak global demand in fiscal 2026.Yet its fortunes remain closely tied to weather-related shocks and government export curbs aimed at meeting domestic priorities.This fiscal, a weak monsoon and the onset of El Niño conditions could hurt agricultural output. While marine exports have remained resilient, even in the face of elevated US tariffs, several major agricultural export categories are confronting growing challenges.Exports of key products such as basmati rice, spices and sugar have begun the fiscal year on a subdued note. If rainfall ultimately falls below normal, export performance across the agricultural sector could come under further strain.Given that agriculture and electronics together contribute over one-fifth of India’s merchandise exports, their performance will play a crucial role in determining overall export momentum.Third, global demand forecasts are far from encouraging.The supply-chain disruptions stemming from the West Asia conflict have led to downward revisions in growth forecasts for calendar year 2026.Growth worriesGlobal gross domestic product (GDP) growth is projected to slow to 3.1 per cent in 2026 from 3.4 per cent in 2025. With the exception of the US, most regions—including several of India’s key trading partners—are expected to record slower growth.The US economy is expected to grow by 2.1 per cent in calendar year 2026, unchanged from 2025. However, that number could slow if tensions in West Asia remain unresolved and repercussions continue.Fourth, trade policy concerns persist. Fresh uncertainty surrounding US tariffs—the trade deal with India has been pushed back yet again—could create renewed headwinds for exports. At the same time, European Commission’s recent decision to reduce its annual tariff free steel import quotas to address the adverse effect of global oversupply on EU steel market could also dampen certain steel exports from India to the region.However, it is not all doom and gloom.FTA gainsRecent and upcoming free trade agreements (FTAs) provide grounds for optimism. Crisil Intelligence notes that with six agreements signed over the past four years, India now has FTAs with more than half of the world’s largest importers. That share is set to rise to nearly two-thirds once the terms of the proposed US FTA are finalised.This marks a significant increase from calendar year 2021, when India’s FTAs provided preferential access to only 17% of its global merchandise export markets by value.That said, it may take time for these agreements to translate into tangible gains.Experience suggests that exporters will need guidance and support to fully leverage the opportunities created by these deals. Moreover, FTAs merely provide a foot in the door. To derive meaningful benefits from these agreements, India must further strengthen its export competitiveness.Deshpande is Principal Economist and Verma is Senior Economist, Crisil Ltd. Views are personal.Published on July 17, 2026