Foreign Trade of India

India trades goods and services with the rest of the world every day. This article covers how that trade is measured, and how policy has shaped it.

MCQ Questions

Indian Economy · Foreign Trade

$691.1B

Forex reserves, end-March 2026

RBI Annual Report 2025-26 — about 11 months of import cover

$333.2B

Merchandise trade deficit, 2025-26

RBI Annual Report

-$16.5B

Net FPI outflow, 2025-26

RBI, 2025-26

$7.7B

Net FDI inflow, up from $1B prior year

RBI, 2025-26

$30.8B

BoP deficit, Apr–Dec 2025

RBI, FY26

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Indian Economy

Trade Balance, BoP, and Forex Reserves Need to Know

• The balance of trade is the difference between a country’s exports and imports of goods. India has usually run a trade deficit, importing more goods than it exports.
• The balance of payments is broader than trade alone. It records all economic transactions between India and the rest of the world, including services, investment, and remittances.
• Foreign exchange reserves are the foreign currency assets a country holds, mainly through its central bank. India’s reserves fell dangerously low just before the 1991 reforms.
• India’s major export categories include petroleum products, gems and jewellery, pharmaceuticals, and software services. Major imports include crude oil, electronics, and gold.

Current Account, Capital Account, and FDI vs FPI Good to Know

• India’s current account tracks trade in goods and services, plus income and transfers. The capital account tracks investment flows, like foreign direct investment and portfolio investment.
• Foreign Direct Investment (FDI) involves a lasting stake in a business, like building a factory. Foreign Portfolio Investment (FPI) involves buying shares or bonds without taking direct control, and can move in and out much faster.
• India’s large services trade surplus, especially from IT exports, regularly offsets a significant part of its goods trade deficit, softening the overall current account picture.
• Remittances sent home by Indians working abroad are a major and stable source of foreign exchange, often exceeding FDI inflows in a given year.

Test Yourself

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1. Who developed the Open Consistency Model, which factored in foreign trade more explicitly than the Mahalanobis model?

Alan Manne and Ashok Rudra

P.C. Mahalanobis alone

Raj Krishna

Jawaharlal Nehru

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Post-1991 Trade Policy and the WTO Framework Great to Know

• India’s trade policy shifted sharply after 1991, from import substitution (protecting domestic industry behind high tariffs) toward export promotion and openness to global trade.
• A current account deficit is not automatically a crisis — it becomes dangerous mainly when it is financed by short-term, easily-reversible capital inflows rather than stable, long-term ones like FDI.
• India’s trade relationships are shaped by both bilateral agreements and multilateral bodies like the World Trade Organization (WTO), which sets global rules on tariffs and trade disputes between member countries.

Current Affairs

• 13 July 2026: India’s cumulative exports (merchandise and services) for April-June 2026-27 hit an estimated $232.73 billion. That’s up from $208.98 billion in the same period last year — 11.37% growth. Merchandise exports rose 15.92%, to $129.32 billion; non-petroleum exports rose 12.44%, to $106.30 billion. (Source: PIB)
• Total imports for the quarter rose faster, at 17.55%, to $270.15 billion, widening the trade deficit to $37.42 billion. In June 2026 alone, growth was led by Gems & Jewellery (up 34.64%), Engineering Goods (up 20.74%), and Electronic Goods (up 18.93%). (Source: PIB)
• India’s forex reserves stood at $691.1 billion at end-March 2026 (RBI Annual Report 2025-26) — about 11 months of import cover. (Source: Business Upturn)
• India’s merchandise trade deficit widened to $333.2 billion in 2025-26. Net FDI inflows rose to $7.7 billion (from $1 billion the prior year), while net FPI recorded a $16.5 billion outflow. (Source: Outlook Money)
• On 23 June 2026, NITI Aayog released the eighth edition of its “Trade Watch Quarterly,” covering Q4 FY2025-26 (January-March 2026). Vice-Chairman Ashok Kumar Lahiri released it in New Delhi. (Source: PIB)
• India’s total merchandise and services trade grew 5.4% year-on-year in FY2025-26, to $1.84 trillion. Services exports grew 9.0%, keeping India the world’s eighth-largest services exporter. (Source: PIB)
• The edition’s thematic focus was pharmaceuticals. India exported $35.8 billion in pharmaceutical and API products, against an estimated $1.3 trillion in global demand. (Source: PIB)
• India’s strength lies in formulations and generic drugs, with limited presence in high-value biologics. Telangana, Gujarat, and Maharashtra are its key pharmaceutical manufacturing hubs. (Source: PIB)