US deal alone insufficient to secure India’s long-term trade, export growth

While valuable, a free trade agreement (FTA) with the US in itself will not be enough to secure India’s long-term trade and export growth, according to Chandrajit Banerjee, Director General of the Confederation of Indian Industry (CII). Having concluded agreements with UK, New Zealand, and Oman in 2025, Banerjee said the industry is hopeful 2026 will see a “broader and more strategic push, both through early conclusion of other key negotiations, including with the European Union, and through effective implementation of already-signed agreements to ensure tangible benefits for exporters, especially Micro, Small, and Medium Enterprises (MSMEs).”

2025 has been a great year for the Indian economy looking at GDP growth and inflation. What is your outlook for 2026 for these key macro indicators?

Recent data point to sustained strength, with real GDP growth exceeding 8 per cent in the first half of the fiscal year, continued expansion in manufacturing and services PMIs (Purchasing Managers’ Index), resilient services exports, recovery in rural demand, and steady traction in government capital expenditure. Reinforcing this positive assessment, the latest CII-Business Confidence Index rose for the third consecutive quarter to 66.5 in Q3, up from 66.0 in Q2 and 66.2 in the same quarter last year, marking the highest level in the past five quarters and signalling sustained improvement in business sentiment.

What adds to our confidence is the increasingly broad-based nature of growth. Public capex is effectively crowding in private investment, corporate balance sheets remain healthy, and capacity utilisation is gradually improving. The lagged impact of tax reforms, regulatory measures, and monetary easing is beginning to support consumption and investment decisions, even as global conditions remain uncertain.

Looking ahead, India’s domestic demand engines, led by investment, infrastructure-driven activity and a strong services sector, are expected to provide stability to growth. At CII, we expect GDP growth in the range of 7.3-7.5 per cent in the current fiscal year, higher than our earlier assessment. This momentum is likely to carry into the next year as well, with growth expected to remain in a similar range, reflecting the underlying strength of domestic drivers. Inflation, meanwhile, is likely to remain anchored below the Reserve Bank of India’s (RBI) target of 4 per cent next year, providing a stable macroeconomic backdrop.

Private consumption, led by income tax and Goods and Services Tax (GST) rate cuts, has helped push growth. Do you see domestic demand continuing to grow at the current pace of 8 per cent or more?

Urban demand is gradually gaining traction on the back of these measures, aided by improving consumer confidence and stable inflation that has preserved real purchasing power. At the same time, rural demand remains resilient, underpinned by a favourable monsoon that has supported higher agricultural activity, strengthened farm incomes, and improved overall income prospects in rural areas. This combination of strengthening urban consumption and resilient rural demand provides a solid foundation for domestic demand growth.

Looking ahead, as the full impact of GST, repo rate cuts, tax relief and regulatory measures plays out, private consumption is likely to sustain a healthy pace in real terms. While maintaining growth of 8 per cent or more will depend on continued income gains, the underlying drivers of domestic demand remain firmly in place.

What about private capex? Companies continue to sit on a lot of cash, make financial investments, as seasonally adjusted capacity utilisation is stuck around 75 per cent.

CII’s analysis suggests that private capex in India has clearly moved beyond a tentative phase and is gaining momentum, supported by the strength in household consumption that provides a durable demand outlook. An assessment of around 1,600 non-financial firms using CMIE’s (Centre for Monitoring Indian Economy) Prowess database shows that corporate capex rose to about Rs 12.1 lakh crore in FY25, up from Rs 8.1 lakh crore in FY24 and Rs 5.5 lakh crore in FY19, implying a healthy 14 per cent CAGR (compound annual growth rate) since the pre-pandemic period. This points to firms increasingly committing capital to productive assets rather than merely accumulating cash. Strong new project announcements and a moderation in project stalling rates further indicate improving investment confidence and execution discipline.

Although overall manufacturing capacity utilisation remains in the mid-70 per cent range, several infrastructure-linked segments, particularly cement, select steel categories, and digital infrastructure, are already operating at relatively tight levels, signalling rising investment readiness and the onset of the next capex cycle.

For 2026, industry is looking for greater certainty, in a very uncertain world. The need for greater ease of doing business remains, even as the governments at the Centre and states have already done quite a bit in this area.

The global trade environment was difficult in 2025. What are your hopes from 2026 — will a trade deal with the US be enough?

As we look ahead to 2026, there is cautious optimism that the global trade environment will stabilise, supported by India’s growing competitiveness and proactive trade policy.

A trade deal with the US would certainly be valuable as it is one of India’s most important export destinations, and a balanced agreement could help address tariff and non-tariff barriers, enhance predictability for businesses, and unlock new opportunities in high-value sectors such as manufacturing, digital trade, and services. However, from an industry standpoint, a US deal alone will not be sufficient to secure India’s long-term trade and export growth.

The government’s recent success in concluding FTAs with the UK, New Zealand, and Oman is a significant step forward and sends a strong signal of India’s commitment to deeper global integration. Building on this momentum, industry hopes that 2026 will see a broader and more strategic push, both through early conclusion of other key negotiations, including with the European Union, and through effective implementation of already-signed agreements to ensure tangible benefits for exporters, especially MSMEs. Equally important is strengthening domestic competitiveness through logistics reforms, easier access to export finance, faster regulatory clearances, and support for compliance with global sustainability and quality standards.

This year we saw the government get active on the reforms front: GST 2.0, labour codes, and nuclear law amendments, among others. How do you assess their impact and what are the others the government should prioritise?

The reforms announced this year will strengthen India’s competitiveness. The momentum of next generation structural reforms should gather further pace, to accelerate long‑term growth.

Sustaining capital expenditure should be a key priority. CII recommends a strengthened National Infrastructure Pipeline with a target investment of Rs 150 lakh crores. The NIP should identify shovel‑ready, revenue-credible projects and deploy faster dispute‑resolution mechanisms to crowd in private investment and enhance productivity across sectors.

Equally important is development and strategic funding for meeting the long-term growth and development goals.

On the knowledge and technology front, accelerating innovation and R&D is essential. Establishing 10 Centres of Advanced Learning and Research in frontier domains such as AI, quantum, advanced materials, clean energy, and biotechnology will position India as a creator rather than merely a consumer of cutting‑edge technologies. A complementary India Talent Agency can attract global researchers, strengthen collaboration with the diaspora, and build deep R&D talent pipelines.

Complementing regulatory modernisation, a dedicated Digitisation Fund can accelerate the transformation of India’s regulatory architecture through initiatives such as the Unified Enterprise Identifier, an API‑based compliance ecosystem, upgraded e‑Gazette and India Code, and a robust National Regulatory Compliance Grid. These investments will sharply reduce compliance burden, dissolve data silos, and create frictionless, paperless regulatory processes that improve ease of doing business.

Finally, in financial services, establishing a new expert committee, on the lines of the former Narasimham Committees, is vital to guide the next generation of banking‑sector reforms. This body should define future‑ready banking structures, ownership and governance norms, capital frameworks, and long‑term institutional design, ensuring that India’s financial system remains robust, efficient, and capable of supporting sustained growth.

What is your assessment of foreign demand for Indian goods? October had seen a 12 per cent fall in exports, but November saw a 19 per cent rise. Is the picture mixed, could you offer some clarity?

India’s export performance in 2025 should be assessed beyond month-to-month volatility. You are correct in mentioning that merchandise exports have remained volatile this year so far due to headwinds from higher US tariffs and slowing global growth. The stronger performance in the first half of the fiscal partly reflected front-loading of shipments ahead of tariff hikes, and some moderation in the second half is therefore expected. This, however, does not indicate a structural weakening in external demand.

The underlying resilience of India’s exports remains intact. While dependence on the US has moderated, India has expanded its footprint in destinations such as the UAE, China, Hong Kong, Vietnam, and Thailand, helping cushion tariff-related pressures. Overall, this shift underscores India’s ability to adapt its export strategy in response to global disruptions, reduce over-dependence on any single market, and build greater resilience through deeper engagement with Asia and other emerging destinations. Services exports have continued to act as a key stabiliser, offsetting volatility in goods trade.

There are concerns about foreign investors pulling out money and weak foreign direct investment (FDI) inflows. What needs to be done more to attract foreign investment?

Concerns around foreign investors pulling out capital need to be viewed in the right context. Low net FDI isn’t a new concern; it has been a persistent narrative over the last few years. However, focusing only on net flows can be misleading and risks overlooking the underlying strength of India’s investment story. The widening gap between gross and net FDI does not reflect a loss of investor confidence. Rather, it signals a maturing capital market, deeper integration with global value chains, and increased repatriation and outward investments by global firms operating in India.

Globally, investor sentiment has been cautious, as highlighted in recent international assessments, with higher returns in advanced economies encouraging capital to stay closer to home. In this environment, India’s ability to sustain strong gross inflows is itself a sign of resilience. The policy priority, therefore, is not short-term flow management, but strengthening India’s medium-term attractiveness, through greater policy predictability, faster project execution, building bankable PPP (Public-Private Partnership) frameworks, and coordinated Centre-state efforts.

The National Manufacturing Mission, announced in Union Budget 2025-26, is expected to be operational soon. What should be the key focus areas for the government to make it successful?

The National Manufacturing Mission can serve as a powerful catalyst for India’s manufacturing growth if it is anchored around a few high-impact priorities.

First, advanced manufacturing must be positioned at the core of the Mission. A mission-mode approach will accelerate the adoption of cutting-edge technologies, driving improvements in productivity, quality, energy efficiency, and global competitiveness.

Second, the Mission should function as a central platform, enabling convergence across central and state governments, by streamlining decision-making, simplifying regulations, and offering integrated support, it can enhance ease of doing business.

Third, a cluster-based development strategy should be adopted. In the first phase, high-potential export-oriented clusters can be upgraded through infrastructure improvements, process optimisation, and capacity building.

Four, building a future-ready workforce is essential. Large-scale skilling and reskilling aligned with clean technologies, advanced manufacturing, and sustainable processes will support long-term growth.

Finally, the Mission must prioritise the MSME ecosystem by improving access to finance, technology upgradation, and integrating MSMEs more deeply into domestic and global value chains to ensure inclusive and globally competitive growth.

Note: This article was first published in The Indian Express