Services Export May Overtake Merchandise in 2026-27, Fingers Crossed on AI

India’s trade deficit widened sharply in 2025-26 as import growth far outpaced exports, while the war in the Gulf disrupted shipping through the Strait of Hormuz and exposed the country’s continuing dependence on imported energy, electronics and Chinese industrial inputs.

Data released by India’s commerce ministry today showed total goods and services trade rose 5.4% to $1.84 trillion in 2025-26, underscoring the economy’s growing integration with global markets. But the broader trade balance deteriorated.

Merchandise exports rose just 0.9% to $441.8 billion, reflecting weak global goods demand. Merchandise imports climbed 7.5% to $775.0 billion, widening the merchandise trade deficit 17.5% to $333.2 billion.

Including services, India’s total exports rose 4.2% to $860.1 billion while total imports increased 6.5% to $979.4 billion. The overall trade deficit widened 26% to $119.3 billion.

March Trade
The economic fallout from the Gulf conflict became visible in March 2026 trade figures after the physical disruption of shipping through the Strait of Hormuz.

India’s exports to the UAE plunged 61.8% to $1.3 billion in March, while exports to Saudi Arabia fell 45.6% to $528 million. Imports from the UAE dropped 66.2% to $2.6 billion, imports from Saudi Arabia fell 36.4% to $2.1 billion, and imports from Qatar declined 47.9% to $537 million.

Crude oil and petroleum-product imports also fell sharply, dropping 35.8% to $12.2 billion in March from $19.0 billion a year earlier, as disruptions in Hormuz constrained energy shipments.

Trade with the US offered relief, with India’s exports to the US rising 0.9% to $87.3 billion in 2025-26 despite elevated reciprocal tariffs on most Indian products.

Services Near Historic Milestone
India’s services exports are nearing a historic crossover with merchandise exports. Services exports rose 7.9% to $418.3 billion in 2025-26, compared with merchandise exports of $441.8 billion.

If current growth rates persist, services exports could overtake goods exports next year, making services India’s largest export category for the first time. The shift would cement the dominance of India’s IT and business-services sector, though GTRI warns that artificial intelligence is beginning to disrupt traditional outsourcing and software-services models. India needs a national strategy to transform its IT industry, move up the value chain, and build new strengths in advanced digital and business services.

Electronics Imports
India’s electronics imports topped $100 billion for the first time, rising 17.7% to $116.2 billion in 2025-26, highlighting India’s continued dependence on imported semiconductors, components and electronic equipment despite its manufacturing push.

Electronics exports also climbed 24.7% to $48.0 billion, helped by smartphone shipments, but remained far below imports.

China Deficit
India’s trade deficit with China crossed the $100 billion mark for the first time, reaching $112.1 billion in FY 2025–26.

Exports to China rose to $19.5 billion, but imports from China increased to $131.6 billion, underscoring India’s dependence on Chinese electronics parts, machinery, chemicals, battery components and pharmaceutical ingredients.

Trade continues to account for an increasing share of India’s economy. Based on estimated nominal GDP of $4.2 trillion, India’s total exports of goods and services now equal roughly 20.5% of GDP, while total trade amounts to nearly 43.8% of economic output.

The data highlight an economy becoming more globally integrated—but also more exposed to external shocks, supply-chain disruptions and strategic import dependencies.

India’s 2025-26 trade data highlight a structurally more globalised but increasingly vulnerable economy. The March disruption caused by the Gulf conflict and Strait of Hormuz blockade demonstrated how quickly geopolitical events can hit India’s trade and energy flows. At the same time, electronics imports crossing $100 billion and the trade deficit with China exceeding $112 billion underscore persistent dependence on imported technology and industrial inputs. GTRI noted that services exports may soon overtake merchandise exports, but warned that AI-driven disruption to the IT sector requires a national strategy to upgrade India’s digital and business-services capabilities.