Services save Indian exports

India’s cumulative exports (services and merchandise) grew by more than six per cent between April 2025 and January 2026, or the first 10 months of the financial year. According to an official press release, this “reflects India’s resilience, with high-value commodities, widening global partnerships, and policy reforms supporting a more balanced, and globally-integrated trade trajectory.” However, a dissection reveals huge gaps, and challenges in the export journey. Product exports nearly plateaued, weaknesses marked services, and huge hikes happened in agriculture commodities, not manufactured goods.

Let us start with the good news. Despite the geopolitical disruptions in 2025, which escalated now due to the Iran-Israel-US war, amidst the trade tariffs, exports did not falter. A six per cent growth in such an external environment is commendable, given that GDP growth in 2025-26 is likely to 7.4 per cent, as per the new GDP series. There were pockets of good news. For instance, there were positive signs of diversification in destinations, which implied expansion across geographies. “India ranks among the top five economies for the diversity of its traded products, and among the top three for the diversity of its trade partnerships,” according to UNCTAD’s trade diversity indices for Global South.

In the services sector, market diversity was forced due to the US’ trade policies, and punitive tariffs. Indeed, the process started before Donald Trump became America’s president for the second time. “While the US remains the largest export destination (in services via software) … Europe’s share rose (by two percentage points) … to 32.8 per cent between FY-24 and FY-25. In products, the diversity was visible in the number of products exported “across multiple key categories.” Double-digit growth was recorded in agriculture, and engineering goods, and high ones in refinery products, and ores and minerals.

Services proved to be high-flyer in exports, as the figures in the first 10 months of this financial year were 10.57 per cent higher year-on-year. Indeed, the sector, whose contribution remains lower than products, was nearly at par. The more than $350 billion it earned was a tad lower than merchandise exports of more than $365 billion. It is services exports, with huge trade surpluses (almost $190 billion in 2024-25) that enable India to manage the overall trade deficit. With the onslaught of artificial intelligence, the trend may not persevere.

There are other not-so-visible uncertainties. Exports via Global Capability Centres (GCCs), which allows the global giants to use India to provide crucial services to the parents, and which are being touted as the ‘next big thing’ after software, grew at a compounded annual rate of seven per cent in the past few years. In comparison, the overall services exports grew by 13.6 per cent in 2024-25, and 10.57 per cent in the first 10 months of this financial year. Although Stanford’s AI Index Report (2025) “places India second globally in AI skill penetration,” AI may emerge as a prominent reason to curb exports in the future.

Merchandise exports are where the weaknesses are stark. In the first 10 months of this financial year, they inched up by a mere 2.2 per cent year-on-year, or an addition of less than $8 billion. In January 2026, the highest-growth areas were other cereals (88.49 per cent), coffee (36.03 per cent), iron ore (31,54 per cent), meat, dairy, and poultry (17.92 per cent), and marine products (13.29 per cent). These include either agriculture products, or low-value ores. Engineering goods (10.37 per cent), and refinery products (8.55 per cent) provided a breather.

But the growths in much-highlighted areas such as electronics (0.32 per cent), pharma (0.96 per cent), textiles (1.01 per cent), and processed cereals and other items (1.12 per cent) were abysmal. This is despite other milestones in these segments. Electronics was the third-largest and fastest-growing export category in 2024-25, and contributed more than $20 billion in the first six months of this financial year.

In the first five months of the year, the exports of smartphones grew by a massive 55 per cent. India ranks 11 in global pharma exports, with a three per cent share, and is the sixth-largest exporter of textiles and apparel.

Automobiles witnessed strong export growth, but the number of vehicles shipped grew by just over 1.2 million units in four years between 2020-21 and 2024-25. In the first half of 2025-26, there was a double-digit growth, but the numbers and value are low. Defense is possibly an impressive sector, with exports zooming from INR 1,000 crore in 2014 to nearer to INR 24,000 crore in 2024-25. But one needs to accept that this is on a small base, although India ships defense products to more than 100 nations, which include the US and France. Remember, India purchased 36 Rafale aircraft from France a few years ago.

Hopefully, merchandise will pick up in the future. The India-European Union trade deal, and a possible India-US one, apart from the one with the UK, may spur exports. They may lead to huge investments, which will boost India’s local production, and add to the exports. However, the investment inflows will take time, and have a lag effect of several years. It took a similar time for smartphones overseas sales. Experts fear that the recent trade deals may lead to higher imports, despite a growth in exports, and further distort the country’s trade deficit.

What is crucial is that the unstable state of merchandise exports is despite the slew of policy measures to boost local production, and exports. In electronics, the semiconductor mission, with an outlay of INR 76,000 crore, aims to provide 50 per cent financial support for semiconductor fabrication, assembly, testing, and chip design. There are efforts to integrate India’s AYUSH systems with the global health intervention framework to push pharma exports. In defense, the target is to hike production to INR 3,00,000 crore, with exports of INR 50,000 crore by 2030. A large part of both will come from the private sector.

However, the Government seems optimistic. As an official press release states, “India’s experience demonstrates that import substitution and export strength can move together when approached strategically. Across sectors, from mobile phones and medicines to automobiles and defense, the push is to build in India not only for domestic needs, but for global markets.

As local capacity expands, and import reliance falls, many industries also gain scale to export more, strengthening the external sector. Looking ahead to Viksit Bharat 2047, India’s self-reliance will go hand-in-hand with deeper global integration. This will help expand ‘Made-in-India’ products, create jobs, (and) boost growth.”