India’s Trade Scenario
India’s trade has increased from 17% of GDP during 1991 to 46% of GDP during 2023¹ owing to the liberalization reforms which led to the gradual easing of restrictions from a highly protected and controlled economy; fostering competition, innovation, foreign investment and economies of scale. We have moved up the Global Value Chain (GVC) with the GVC-related trade in gross tradeincreasing to 40.3% in 2022 from 35.1% in 2019; our performance in the Logistics Performance Index also improved significantly. The current Account Deficit has narrowed by one-third over the last year, from 2% of GDP in FY23 to 0.7% of GDP in FY24, aided by lower merchandise trade deficit and higher services exports². Our merchandise exports and imports have increased to $437 billion and $677 billion from $17.9 billion and $19.5 billion at the time of liberalization³, and initiatives like the Production-Linked Incentive (PLI) scheme and Districts as Exports Hub (DEH) are helping India create a future trade landscape that integrates its robust local ecosystem with global markets. However, our journey towards increased globalization is still posed by various infrastructural, logistical, and market challenges such as an underused coastline, high costs of logistics, high tariff rates and regulations.

Current State of Servicesand Merchandise Trade^4,5
The share of India’s services exports in world services has increased drastically from 0.5% in 1993 to 4.3% in 2022. Today, we are the seventh-largest services exporting country globally; our exports of telecommunication, computer and information services have increased significantly, making us rank second worldwide. Our growth in Global Capacity Centres has been exceptional, from 760 in 2012 to 1600 in 2023. Rising exports of software, travel, and business services have led to a surplus in services trade of $163 billion and we have received a net positive secondary income of $106 billion in 2023-24.

India’s merchandise exports rose from $314 billion in 2013-14 to $437 billion in 2023-24.Imports, on the other hand, increased by a greater magnitude from $450 billion to $678 billion during the same period, widening our trade deficit from $136 billion to $241 billion. External debt to GDP ratio has declined from 23.9% in 2014 to 18.7% of GDP in 2024.
 

Figure 1: India’s Trade Balance
Source: World Integrated Trade Solutions

Amongst merchandise exports, engineering goods have been the biggest drivers of growth, accounting for over 25% of exports in 2023-24, followed by petroleum products (19%), supported by high crude oil prices and strong global demand amid supply chain disruptions. Other industries, such as telecommunications and aluminium, have also experienced notable export increases over the last ten years. Crude oil accounted for around 26% of merchandise imports in 2023-24, highlighting India’s dependence on crude oil imports to satisfy its energy needs and export value-added goods. India’s trade deficit in the electronics industry has more than doubled over the last decade, surpassing $58.7 billion in 2023-24. This substantial deficit indicates a gap in domestic high-tech manufacturing capabilities, particularly in critical technologies like computers and microchips, where India's balance of trade lags, underlining the need for strengthening domestic production in this sector.

Figure 2: Share of Top 5 Exported Items (2023) (%) // Figure 3: Share of Top 5 Imported Items (2023) (%)
Source: Directorate General of Commercial Intelligence and Statistics, Government of India

India’s Expanding Global Reach⁶
India's export markets have expanded significantly in recent years, with the USA and UAE remaining key destinations. In 2023-24, over 18% of India's goods exports went to the USA. However, newer markets such as Bangladesh, Indonesia and the Netherlands are also emerging as important export destinations, showcasing India's diversification of trade partners and the expanding web of trade.
      






















Figure 4: Major Export Destinations (2023) // Figure 5: Major Import Sources (2023)
Source: World Integrated Trade Solutions

On the import side, China continues to be a major supplier for India, particularly in sectors like electronics. However, very recently, there’s been a strategic shift in India’s import preferences and a spike in imports from Russia driven by increased crude oil imports has been seen following the invasion of Ukraine. Russia’s share of India's total merchandise imports rose to 9%, and its position moved from being India’s 20th largest import source in 2021-22 to 2nd in 2023-24; as of today, Russia accounts for almost 40% of India's total oil purchases. This shift illustrates how global events like geopolitical conflicts can influence trade patterns, increasing globalisationand vulnerability to international developments.

Signing of Trade Agreements for Increasing Global Market Share of Exports
India’s experience of signing 13 regional/Free Trade Agreements (FTAs)⁷ with partners like Japan, South Korea, Sri Lanka, the Association of Southeast Asian Nations (ASEAN), Australia, the European Free Trade Association (EFTA), Mauritius, and the UAE have been mixed. While FTAs with ASEAN, Japan, and South Korea have boosted trade volumes and provided access to new markets, they have also led to growing trade deficits, especially in sectors like electronics and machinery. Indian manufacturers have struggled to compete with cheaper imports and many exporters face non-tariff barriers. Despite these challenges, India’s recent FTAs with Australia and the UAE show a renewed focus on securing better terms for its industries. Issues like under-utilization of FTAs and the exclusion of sensitive sectors remain key challenges.

Challenges and Opportunities Faced by India
India has significant potential in global trade but is posed by challenges and opportunities that will shape its global influence. While our infrastructure and logistics have improved over the past decade (our Logistics Performance Index (LPI) has risen from 3.08 in 2014 to 3.40 in 2023 and global rank has improved from 54th to 38th)⁸, there are still critical issues to address. Challenges such as customs inefficiencies, inadequate port facilities, and increased costs hinder the timeliness and reliability of shipments and impact our competitiveness in global exports. To strengthen our role in international trade, we need to continue raising domestic standards in infrastructure and logistics.

India’s trade is currently affected by long-standing issues and short-term global challenges, such as the recent Red Sea crisis, which caused freight rates to surge by up to 600%. Despite improvements, India's port infrastructure still lags behind the global standards needed to handle ultra-large vessels, limiting its ability to capitalize on economies of scale and GVC integration. While trade agreements are crucial, corresponding physical infrastructure is required to realize ambitions.

The Government has undertaken various measures to expand exports and reduce logistics costs involved in trade such as providing export credit insurance services, encouraging banks to provide affordable and adequate export credit to MSME exporters, launching Gati Shakti National Master Plan and National Logistics Policy (NLP), undertaking digital reforms like the Unified Logistics Interface Platform and the Logistics Data Bank, etc. The focus must remain on improving the ease of doing business and boosting the competitiveness of Indian exports to turn India’s global trade ambitions into reality.

Leveraging Digital Infrastructure and Artificial Intelligence to Transform Trade
India's digital infrastructures as well as the rise of Artificial Intelligence (AI) hold transformative potential for its international trade prospects. One key opportunity lies in exporting India’s Digital Public Infrastructure (DPI) model, particularly the Unified Payments Interface (UPI). For example, the recent launch of UPI in France is not only expected to expand India’s global influence but also open new trade avenues through the export of technology solutions. Additionally, AI can be used in predictive analytics, supply chain optimization, and cost reduction, revolutionizing trade operations and boosting efficiency across various segments.

India's Trade Ambitions and Future Outlook
India’s ambitious Foreign Trade Policy (FTP) 2023 aims to achieve $2 trillion in exports, focusing on streamlining processes, e-commerce, and high-end technologies, and promoting district-level exports through targeted local initiatives and support for exporters. The PLI scheme launched in 2020 has already shown notable success in the electronics sector and aims to boost domestic manufacturing and reduce import dependency by offering incentives based on incremental sales. As global manufacturers adopt the “China+1 strategy”, looking to diversify production away from China, India stands to benefit significantly. We urgently need to focus on value-added exports for moving up the GVC.

India's future trade landscape holds immense opportunities, supported by market-friendly policies and innovative solutions. However, challenges like infrastructural gaps, export quality, and the evolving global economic climate need to be addressed. While the country is poised to enhance its role on the worldstage, the extent of its success will largely depend on the ability of policymakers to adapt and implement effective strategies.

Dr Bhutani is an Economic Officer, Department of Economic Affairs, Ministry of Finance, Government of India.
Dr Gopalakrishnan is Distinguished Fellow, Pahle India Foundation and Fellow, NITI Aayog.

Footnotes:
1 https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS
2 Economic Survey 2023-24. (2024). Ministry of Finance, Government of India, New Delhi.
3 https://wits.worldbank.org/countrysnapshot/en/IND
4 Economic Survey 2023-24. (2024). Ministry of Finance, Government of India, New Delhi.
5 RBI. (2024). Handbook of Statistics on Indian Economy.
6 Export Import Data Bank (Annual), Trade Statistics, Ministry of Commerce and Industry, India’s International Trade in Services, RBI. https://tradestat.commerce.gov.in/eidb/default.asp
7 https://indbiz.gov.in/trade/trade-agreements/
8 https://lpi.worldbank.org/report