India’s services sector is quietly acting as the primary buffer against a widening merchandise trade deficit, according to NITI Aayog’s latest Trade Watch Quarterly report. While merchandise trade continues to remain under pressure, a robust surplus in services has helped contain the overall imbalance. The report notes that “a net services trade surplus of $57.5 bn was generated during the quarter,” even as the combined goods and services balance stood at a deficit of $34.3 billion . This divergence stresses the growing reliance on services exports to stabilise India’s external position.

Goods trade remains a drag on overall balance

The contrast between goods and services is important. Merchandise exports grew just 1.6% year-on-year to $110.5 billion in the December quarter, while imports rose a sharper 7.9% to $202.3 billion, widening the goods trade gap. The imbalance is further exacerbated by India’s dependence on key imports such as energy and fertilisers, the latter witnessing a sharp 70.5% increase during the quarter . The data reinforces a structural reality: India’s goods trade continues to be import-heavy and vulnerable to global commodity cycles.

Structural dependence on imports persists

The report points toward a deeper issue underpinning the trade imbalance—concentration of imports both geographically and product-wise. “Imports remain structurally concentrated, with Asia accounting for over 60%,” the report notes, highlighting India’s continued reliance on the region for critical inputs . This dependence exposes the economy to external shocks, particularly in commodities like crude oil, which dominate the import basket.

Export diversification improving, but uneven

On the export side, there are signs of gradual improvement, though progress remains uneven. The report observes that India’s exports are becoming more geographically diversified, with Asia’s share declining and Europe and the Americas gaining traction . However, gains in export alignment with global demand remain “selective and uneven across individual products,” indicating that the export base is still narrow.

Against this backdrop, the strength of services exports—particularly in IT, business and financial services—has taken on added macroeconomic importance. With goods trade struggling to generate sufficient export momentum, the services surplus is effectively cushioning the current account. The data suggests that without this buffer, India’s external balance would be significantly more vulnerable.

The broader takeaway from the report is that while India’s trade is expanding, the quality of that growth remains uneven. Services are providing resilience, but underlying structural challenges—import dependence, commodity exposure and a narrow export base—continue to define the trajectory of India’s trade performance.