India Insider: Working with the West as it Deals with Others

India's Prime Minister Narendra Modi visited Tianjin, China for the 2025 Shanghai Cooperation Organization Summit in early September, which was attended by over twenty nations. Before India visited the conference in August, Washington D.C had already imposed a 50% punitive tariff on India’s exports. The initial tariff was a 25% duty, but included another 25% penalty because India purchases a large amount of Russian Oil, which the U.S seeks to reduce. An uneasy trade dilemma looms for India.

Many Western analysts quickly concluded that Prime Minister Modi was tilting India towards a stronger relationship with the Russian and Chinese camps, by potentially embracing warmer associations with Presidents Vladimir Putin and Xi Jinping, and defying Washington’s previous warnings.

Yet, the trade composition and the underlying reality highlights a different story. Despite India being positioned in the global South politically, the nation recognizes its higher value exports - which include textiles, gems and jewelry, apparel, and pharmaceuticals are primarily sold to the West. The United States clearly remains India's biggest consumer. In essence President Trump holds a trump card.

In contrast, China's total exports to the global South (excluding Western Europe, Australia, New Zealand, and North America) has doubled since 2015. Chinese exports to the U.S were $525 billion USD in 2024, but to the global South, China's exports grew to nearly $1.3 trillion USD.

As Professor Michael Pettis accurately points out, “countries with expanding trade surpluses with the U.S, use their higher revenues to fund deficits with the rest of the world.”

India Exports More to the West:

India’s trade surplus with United States, the European Union and U.K stands at $72.18 billion USD. If India wants to be competitive with China in terms of manufacturing, it should affiliate more astutely with the Western camp.

Dependence on Anti-Western Countries Hurts India's Trade Balance:

India’s combined trade deficit with Russia and China is approximately $158 billion USD, which demonstrates how much less India exports to these two countries. India’s overall merchandise trade deficit is $282 billion USD, with a deficit of almost 56% in total attributed to Russia and China.

Service Exports a Crucial Metric in India’s Balance of Payments:

India’s services exports stood at $383 billion USD in financial year 2025, earned primarily from the U.S and other Western countries. Washington has imposed tariffs on India’s tradable goods sector, while the nation's non-tradable sector has been operating without much stress.

India's overall trade deficit stood at minus $94.26 billion USD in financial year 2025. Without service exports (predominately from the software services sector), India’s current account deficit would be much larger and the Indian Rupee would face greater depreciation pressures.

India's economic stability is precarious, equilibrium needs to be found. Solid domestic outcomes for manufacturing and a stable Rupee, including exchange rates, could be achieved with a well-defined calibration that looks West but does not weaken India's stance as a non-aligned nation. New Delhi should focus on maintaining neutrality and strategic autonomy.

While India may shake hands with Presidents Vladimir Putin and Xi Jinping, an important economic lifeline runs firmly through Washington, Brussels, and London. Crucial negotiations are said to be taking place between Prime Minister Narendra Modi's team and President Trump's White House behind closed doors. New Delhi could become vulnerable if it does not find adequate solutions. President Trump has recently reiterated his friendship with the Prime Minister Modi, perhaps an agreement can be produced in the mid-term.