India's external sector is facing unprecedented challenges with net FDI inflows plummeting to less than $1 billion in 2024-25, down from $7.7 billion in the previous fiscal year and well below the peak of $44 billion in 2020-21. Prime Minister Modi's unexpected call to citizens to exercise austerity while spending in foreign currency has highlighted the severity of the situation, urging deferral of gold purchases, reduction in foreign travel, and increased domestic consumption. The government has responded by announcing a major shift in FDI policy in March, with the Department for Promotion of Industry and Internal Trade (DPIIT) making key amendments to Press Note 3 (PN3) to increase regulations on foreign direct investors from countries with which India shares land borders. This policy change, clearly targeted at investors from China following border clashes, represents a significant tightening of foreign investment regulations.
India's agricultural export strategy has successfully diversified from traditional cereal-centric dependence to value-added products and niche markets over the past decade. According to The Hindu BusinessLine, the government's agri export promotion body APEDA has been promoting high-potential products internationally, with the number of products exported at the HS 8-digit level growing from 298 in FY2014–15 to 438 in FY2025–26. This three-way diversification across products, markets, and value addition has made India's agri export sector more resilient and globally competitive, as reported by an official. The share of processed and value-added products has grown steadily in the past few years, with the government's decision to expand value-added products helping maintain agriculture exports even when faced with periodic bans on key items due to domestic food security pressures.
Despite policy volatility, India's rice exports demonstrated resilience in the 2025-26 fiscal year. According to APEDA data, rice exports reached 21.57 million tonnes worth $11.54 billion, compared to 20.19 million tonnes valued at $12.47 billion in 2024-25. In April 2026 alone, rice shipments totaled 2.04 million tonnes valued at $1.01 billion, up from 1.88 million tonnes worth $1.08 billion in the corresponding period of the previous year. The commerce ministry's latest data shows rice exports in May 2026 were worth $1.02 billion, representing a 5% increase from $967 million in the year-ago period. However, the value realization was lower in 2025-26 compared to the previous fiscal year, as reported by an official.
Basmati rice exports showed strong performance with 6.52 million tonnes worth $5.67 billion in the 2025-26 fiscal year. In April 2026 specifically, basmati exports totaled 474,091 tonnes valued at $436.01 million. Non-basmati rice exports were even more substantial at 15.04 million tonnes worth $5.86 billion in the last fiscal year, as reported by APEDA data. This diversification across basmati and non-basmati segments has strengthened India's overall rice export portfolio and reduced dependence on any single variety.
India's merchandise trade deficit reached a historically record level of $333 billion in 2025-26, an increase of over 17% compared to the preceding year. Imports expanded by 7% to scale the highest ever level of $775 billion, while exports increased by less than a percentage point to reach $441 billion. The crisis is particularly evident in precious metals, where imports of gold and silver accounted for about 12% of the import bill at over $90 billion, with gold imports increasing by 24% and silver by a staggering 150%. The unprecedented increase in gold imports has continued unabated in 2026-27, increasing by 82% in April 2026 compared to the previous year. Despite government efforts to reduce gold imports through increased customs duty to 15%, sustained stock market volatility has pushed retail investors towards diversifying their portfolios, with expectations that higher import duties may increase the shift towards ETF gold.
India's urea ecosystem faces significant vulnerabilities despite recent capacity expansion. A Parliamentary Committee recently noted that natural gas accounts for nearly 90% of urea production costs, with a significant share of gas requirements being import-linked. While India has added meaningful urea capacity with six new plants commissioned in recent years, adding 76.2 LMT of capacity, domestic urea production crossed 314 LMT in 2023-24. However, capacity expansion alone cannot fully address dependence when core feedstock natural gas is exposed to global prices and geopolitical risks. The real challenge lies in ensuring quick supply movement to the right geography, timing, and quantity, particularly during peak sowing windows when availability at retail points becomes critical. India's agricultural export strategy has proven effective in managing policy volatility, but the external sector challenges highlight the need for comprehensive policy reforms, including robust domestic policies to enhance competitiveness and address structural weaknesses that have led to the current crisis.
