Structural Changes Since 1991: Volume, Direction and Services

Four things to notice, and each is examinable.

1. Asia dominates both sides, and dominates imports far more than exports: 61.6 per cent of what India buys comes from Asia against 39.8 per cent of what it sells. India's largest supplier relationships are within its own continent, which is a complete reversal of the colonial and early independence pattern in which Britain and Europe were the natural counterparties.
2. America takes a quarter of exports and supplies a tenth of imports. India runs a large surplus with the United States and a large deficit with Asia, which is why bilateral tariff disputes with the United States matter disproportionately.
3. The Commonwealth of Independent States supplies 9.1 per cent of imports and takes 1.5 per cent of exports. That very lopsided ratio is almost entirely discounted crude oil, and it appeared in the last few years; it did not exist before.
4. Africa now takes 9.8 per cent of exports, more than the Commonwealth of Independent States, Europe's smaller members and several traditional partners combined.

Diversification. The Survey records that India ranks third among countries of the Global South on the United Nations Conference on Trade and Development's index of the diversity of trade partnerships, behind China and the United Arab Emirates, with a score of 3.2 which exceeds that of every country of the Global North; and fourth in the Global South on merchandise trade diversity, behind Thailand, China and Turkey, with 0.88, a score above several Global North countries but below the United States and the European Union.

Why diversification matters, with a current instance. India is at present subject to an effective tariff rate of 50 per cent on goods exported to the United States, among the highest imposed on any country, with negotiations continuing. The Survey shows exports to the United States from labour intensive sectors falling year on year over April to November 2025 while India's exports of the same goods to the world grew. That is diversification working: a market closes and the goods go elsewhere. A country whose exports were concentrated on one destination could not do that.

Services: the change the goods tables cannot show

The figures for 2024-25.

The services surplus covered two thirds of the merchandise trade deficit. In April to December 2025 the surplus of 151.7 billion dollars covered 61.1 per cent of the merchandise deficit. India pays for its imported goods substantially by selling services.

Total trade, goods and services together, 2024-25: exports 825.3 billion dollars, up 6.1 per cent and the highest ever; imports 919.9 billion, up 7.4 per cent; total trade deficit only 94.7 billion dollars against a merchandise deficit of 283.5 billion.

That is the single most important line in Module IV. The merchandise deficit of 283.5 billion dollars looks alarming and is quoted in every newspaper; the deficit on goods and services together is 94.7 billion, about a third of it. An answer that discusses India's trade deficit using only the merchandise figure has overstated it three times over.

What the services are. From the balance of payments, the net position on the principal service heads in 2024-25, in millions of dollars:

Read the first and the last row together. India's services surplus is overwhelmingly one item, computer and information services, at 159 billion dollars net. And its largest services deficit is the charge for using other people's intellectual property, 15.5 billion dollars. India sells the work of writing software and buys the right to use software and technology that others own. That is precisely the distinction between providing a service and owning an asset, and it is why the intellectual property regime discussed in [The World Trade Organization] is an economic question for India and not only a legal one.

Composition within software. Computer services are over two thirds of India's software service exports; business process outsourcing remains the largest component of information technology enabled services. The United States takes 52.9 per cent of India's software exports, down from 54.1 per cent the previous year, while Europe's share rose from 30.8 to 32.8 per cent.

Remittances

Private transfer receipts, principally remittances from Indians working abroad, are the third pillar of the external account and are recorded in the balance of payments as secondary income.

• From 55.6 billion dollars in 2010-11 to 135.4 billion in 2024-25, about 3.5 per cent of gross domestic product.
• India is the world's largest recipient of remittances.
• In most years, remittances have exceeded gross foreign direct investment inflows, which makes them a more dependable source of external funding than investment.
• In the first half of 2025-26 they rose to 73 billion dollars from 64.7 billion a year earlier.
• The sources have shifted from the Gulf towards advanced economies, indicating a move towards skilled and professional migration: the United States is the largest source at 27.7 per cent, then the United Arab Emirates at 19.2, the United Kingdom at 10.8 and Singapore at 6.6.

Why a law student should notice remittances. They are a transfer, not a payment for anything: nothing leaves India in exchange. They are therefore the one large credit in the current account that carries no corresponding obligation, and they are the reason India can run a very large merchandise deficit with a small current account deficit.

The result: a manageable external position

• Current account deficit in the first half of 2025-26: 15 billion dollars, 0.8 per cent of gross domestic product, down from 25.3 billion or 1.3 per cent a year earlier.
• Foreign exchange reserves: 701.4 billion dollars as at 16 January 2026, up from 668.3 billion at end March 2025, sufficient for about eleven months of imports.
• External debt: 746 billion dollars at end September 2025, with a debt to gross domestic product ratio of about 18.4 per cent, well below that of most large economies, and India accounts for only 0.69 per cent of global external debt.

Set eleven months of import cover against the five weeks of 1991 in [India's Foreign Trade Before 1991]. That comparison is the answer to any question about what the reforms achieved externally.

A worked example: building the current account from the four figures

The chapter gives four numbers for 2024-25. Put them together and the whole external account appears, in millions of US dollars.

Two notes on the arithmetic, and both are honest ones. The Reserve Bank's own table prints the goods balance as minus 286,947, one million away from the subtraction above, because its source note records that totals may not tally due to rounding. And the goods and services deficit of 98,110 million here differs from the 94.7 billion the Economic Survey reports for the same year, because the balance of payments and the Directorate General of Commercial Intelligence and Statistics count on slightly different bases. A student should quote one source consistently and say which.

Now ask what happens if one of the four fails, which is the reason for doing the arithmetic at all.

India's small current account deficit is the product of three large numbers that nearly cancel. Any one of them moving by a quarter changes the position completely, which is why the external account is described as comfortable rather than as secure, and why concentration in services and in remittances is the risk worth naming.

What beginners get wrong

"India's trade deficit is 283 billion dollars." That is the merchandise deficit. Including services, the total trade deficit in 2024-25 was 94.7 billion dollars.

"India's exports grew but its share of world trade did not." Its share of world merchandise exports rose from 0.5 per cent in 1990 to 1.8 per cent, and of world commercial services exports from 2 per cent in 2005 to 4.3 per cent in 2024.

"India trades mainly with the West." Asia supplies 61.6 per cent of imports and takes 39.8 per cent of exports.

"Remittances are foreign investment." They are transfers in the current account. Foreign investment is a liability in the financial account and must eventually be serviced; a remittance is not owed to anybody.

"The services surplus makes the goods deficit unimportant." It covers two thirds of it, not all of it, and it is concentrated in a single item.

"India's external debt is dangerous." It is about 18.4 per cent of gross domestic product, and reserves cover about eleven months of imports.

Limits

No 1990-91 direction table was read for this book, so the shift in direction is described from the Survey's statements and from the present pattern, not measured against a stated 1990 share.

Fiscal years and calendar years are mixed in the share of world exports table, which compares India's fiscal year with the world's calendar year.

All figures are in current dollars.

Concentration risk. The services surplus rests overwhelmingly on computer and information services sold largely to one country, and remittances on migration policy in other countries. Neither is guaranteed.

Reserves are not costless. Holding 701 billion dollars in low yielding foreign assets is a real economic cost, and a full answer says so.

Quick revision

1. Volume: exports 18,143 million dollars in 1990-91 and 437,705 million in 2024-25, about 24 times; imports 24,075 to 721,200, about 30 times; merchandise deficit 5,932 to 283,496, about 48 times.
2. Share of world merchandise exports: 0.5 per cent in 1990, 1.0 in 2005, 1.8 in 2022. Share of world commercial services exports: 2 per cent in 2005 to 4.3 per cent in 2024, more than twice the goods share.
3. Direction, 2024-25. Exports: Asia 39.8, America 25.5, Europe 22.5, Africa 9.8, CIS and Baltics 1.5. Imports: Asia 61.6, Europe 13.1 (EU 8.4), America 10.7, CIS and Baltics 9.1 (discounted crude), Africa 5.4.
4. Diversification: third in the Global South on trade partnership diversity at 3.2, fourth on merchandise trade diversity at 0.88. Instance: a 50 per cent United States tariff, with exports to the United States falling while exports of the same goods to the world grew.
5. Services 2024-25: exports 387.5 billion (up 13.6 per cent), imports 198.7 billion, surplus 188.8 billion, covering two thirds of the merchandise deficit; 61.1 per cent in April to December 2025.
6. Total trade 2024-25: exports 825.3 billion, imports 919.9 billion, total trade deficit 94.7 billion against a merchandise deficit of 283.5 billion.
7. Inside services: computer and information services plus 159,074 million net; other business services plus 40,566; charges for use of intellectual property minus 15,469. The United States takes 52.9 per cent of software exports, Europe 32.8.
8. Remittances: 55.6 billion dollars in 2010-11 to 135.4 billion in 2024-25, about 3.5 per cent of GDP; world's largest recipient; usually exceed gross foreign direct investment; sources now led by the United States at 27.7 per cent.
9. Position: current account deficit 0.8 per cent of GDP in the first half of 2025-26; reserves 701.4 billion dollars, about eleven months of imports; external debt 746 billion, about 18.4 per cent of GDP.

Test yourself

1. Describe the change in the volume and the direction of India's foreign trade since 1991. In volume, merchandise exports rose from 18,143 million US dollars in 1990-91 to 437,705 million in 2024-25, about twenty four times, and imports from 24,075 million to 721,200 million, about thirty times; the merchandise trade deficit accordingly rose from 5,932 million to 283,496 million, about forty eight times. Relative to the world, India's share of merchandise exports rose from 0.4 per cent in 1980 and 0.5 per cent in 1990 to 1.0 per cent in 2005 and 1.8 per cent in 2022, while its share of world commercial services exports more than doubled between 2005 and 2024, from 2 per cent to 4.3 per cent, so that India's weight in the world's services trade is now more than twice its weight in the world's goods trade.

In direction, Asia dominates both sides of the account, supplying 61.6 per cent of India's imports and taking 39.8 per cent of its exports in 2024-25. America takes 25.5 per cent of exports and supplies 10.7 per cent of imports, so India runs a surplus there; Europe takes 22.5 per cent of exports and supplies 13.1 per cent of imports, the European Union alone accounting for 8.4 per cent; Africa takes 9.8 per cent of exports and supplies 5.4 per cent of imports; and the Commonwealth of Independent States and the Baltics supply 9.1 per cent of imports against 1.5 per cent of exports, an imbalance which is almost entirely discounted crude oil and which is recent. The Survey records that India ranks third among countries of the Global South on the diversity of its trade partnerships.

2. Why is the merchandise trade deficit a misleading measure of India's external position? Because it omits the two largest credits in India's current account. In 2024-25 the merchandise trade deficit was 283.5 billion US dollars, but services exports were 387.5 billion against services imports of 198.7 billion, giving a services surplus of 188.8 billion which covered two thirds of the goods deficit. Taking goods and services together, India's total exports were 825.3 billion dollars and total imports 919.9 billion, so the total trade deficit was only 94.7 billion, about a third of the merchandise figure.

To that must be added remittances, recorded as secondary income, which were 135.4 billion dollars in 2024-25, about 3.5 per cent of gross domestic product, and which are transfers carrying no obligation to repay. The combined effect is that the current account deficit was only 22.9 billion dollars in 2024-25 and 15 billion, or 0.8 per cent of gross domestic product, in the first half of 2025-26. An answer that describes India as running a deficit of 283 billion dollars has therefore overstated the position by a factor of about three on the trade account and by very much more on the current account.

3. What is the composition of India's services trade, and what does it reveal? India's services exports were 387.5 billion dollars in 2024-25 and its imports 198.7 billion, giving a record surplus of 188.8 billion. The surplus is heavily concentrated: telecommunications, computer and information services alone contributed a net 159,074 million dollars, and other business services a further 40,566 million, with financial services, construction and insurance contributing smaller surpluses, while travel and transport were in small deficit. Within software exports, computer services are over two thirds of the total and business process outsourcing remains the largest component of information technology enabled services; the United States takes 52.9 per cent of software exports, a share that fell from 54.1 per cent in the previous year, while Europe's share rose from 30.8 to 32.8 per cent.

The most revealing single item is on the other side of the ledger: charges for the use of intellectual property were a net deficit of 15,469 million dollars. India sells the labour of writing and running software and buys the right to use technology and content that others own. That is the difference between providing a service and owning an asset, and it is why the intellectual property provisions of the World Trade Organization agreements are an economic question for India and not merely a legal one. The other lesson is concentration: a surplus resting on one service head sold largely to one country is a strength that is also a risk.

4. What is the significance of remittances in India's balance of payments? Remittances, recorded as private transfer receipts within secondary income, rose from 55.6 billion US dollars in 2010-11 to 135.4 billion in 2024-25, approximately 3.5 per cent of gross domestic product, and rose further to 73 billion dollars in the first half of 2025-26 from 64.7 billion a year earlier. India is the world's largest recipient. Their significance is threefold. First, they are a transfer and not a payment: nothing leaves India in exchange, so unlike an export they consume no resources and unlike foreign investment they create no liability to be serviced or repatriated.

Second, they are stable, and in most years have exceeded gross foreign direct investment inflows, which makes them a more dependable source of external funding than investment flows that respond to global interest rates and sentiment. Third, their composition is changing in a way that matters: the Gulf Cooperation Council countries historically dominated, but advanced economies now contribute more, with the United States the largest single source at 27.7 per cent, followed by the United Arab Emirates at 19.2 per cent, the United Kingdom at 10.8 and Singapore at 6.6, which indicates a shift from unskilled contract labour towards skilled and professional migration. Their vulnerability is that they depend on the immigration and labour policies of other countries, over which India has no control.

5. Compare India's external position now with its position in 1991. In 1990-91 the Reserve Bank's foreign currency assets stood at 2,236 million US dollars against merchandise imports of 24,075 million, which is roughly five weeks of import cover, and India drew 1,858 million dollars from the International Monetary Fund in that year and 1,240 million in the next, devaluing the rupee in July 1991. In 2026 foreign exchange reserves stood at 701.4 billion dollars as at 16 January, sufficient for about eleven months of imports; external debt was 746 billion dollars at the end of September 2025, or about 18.4 per cent of gross domestic product, well below the ratio of most large economies, and India accounts for only 0.69 per cent of global external debt; and the current account deficit in the first half of 2025-26 was 0.8 per cent of gross domestic product.

The comparison should be made carefully, however. The improvement rests on the services surplus and on remittances rather than on a merchandise balance, which has deteriorated enormously in absolute terms; the reserves are held at a real cost, being invested in low yielding foreign assets; and India's oil import dependence, at about a quarter of the import bill, is exactly what it was in 1990-91. What has changed is not that India has stopped being vulnerable to an external shock, but that it now holds buffers large enough to absorb one.