India has a bit of a persistent headache when it comes to the global marketplace. If you’ve ever looked at a ledger for a massive corporation, you know the goal is usually to sell more than you buy. But for decades, India's balance of trade has consistently tilted the other way. We import way more than we export.
It’s a gap. A big one.
In the fiscal year ending in 2024, India’s merchandise trade deficit sat at roughly $240 billion. That sounds terrifying, right? Like the country is just bleeding cash to the rest of the world. But honestly, the "balance of trade India" conversation is way more nuanced than just looking at a negative number on a spreadsheet and panicking. You’ve got to look at what’s actually in the crates arriving at the Mumbai docks versus what’s leaving them.
The Oil and Gold Trap
The biggest reason the balance of trade stays lopsided is actually pretty simple: India needs stuff it doesn't have. Specifically, energy.
India imports about 80% of its crude oil requirements. When global oil prices spike because of a conflict in the Middle East or a production cut by OPEC+, India’s trade deficit balloons instantly. It’s non-negotiable. You can’t run a developing economy without fuel, so the government just has to pay the bill. Then there’s gold. We have a cultural obsession with the yellow metal—it’s seen as the ultimate "safe" investment and a staple of every wedding season. While gold is an asset, on the trade balance sheet, it’s just a massive import that sends dollars out of the country without producing anything for export in return.
It's basically a structural reality. Until India can pivot hard toward green hydrogen or massive EV adoption, the energy bill will keep the merchandise trade balance in the red.
Services: The Great Eraser
Here is where it gets interesting. If you only look at "goods"—physical things like smartphones, coal, and sneakers—India looks like it's losing. But the "balance of trade" is technically just one part of the Current Account.
✨ Don't miss: Who is on the bills? Why we still use these faces in 2026
When you factor in services, the picture changes.
India is a powerhouse in IT services, consulting, and software development. Companies like TCS, Infosys, and Wipro bring in billions of dollars every month. While the "goods" trade might be $20 billion in the hole for a single month, the "services" trade often sees a surplus of $13 billion to $15 billion. This surplus acts like a giant eraser, rubbing out a huge chunk of the deficit created by oil and gold imports.
A lot of people miss this. They see a headline about a "widening trade gap" and assume the economy is tanking. In reality, India’s strength in the digital economy is what keeps the country’s overall financial health stable. It’s why the Rupee doesn’t just collapse despite the constant merchandise deficit.
What are we actually exporting?
It’s not just code and call centers. India has become a massive hub for refined petroleum. Wait, didn't I just say we import oil? We do. But we also have some of the largest, most sophisticated refineries in the world, like the Reliance complex in Jamnagar. India buys raw "crude" oil, cleans it up, turns it into jet fuel or diesel, and sells it back to Europe and the US.
Then you’ve got pharmaceuticals. India is often called the "pharmacy of the world." If you’re taking a generic medication in America, there is a massive chance it was manufactured in an Indian lab. These are "high-value" exports. They require skilled labor and high-tech facilities, which is exactly where a country wants to be.
The China Factor
You can’t talk about the balance of trade India faces without mentioning the elephant in the room: China.
Our trade deficit with China is massive—often exceeding $80 billion or $100 billion annually. We buy electronics, heavy machinery, and active pharmaceutical ingredients (APIs) from them. Even though the Indian government has pushed the "Make in India" initiative and implemented "Production Linked Incentive" (PLI) schemes to encourage local manufacturing, breaking the dependence on Chinese supply chains is proving to be incredibly slow.
📖 Related: States With No Federal Income Tax: Why That Idea Is Actually A Myth
It’s a weirdly co-dependent relationship. To build solar panels in India (which helps the energy deficit long-term), we often have to import the solar cells from China first (which hurts the trade deficit short-term).
Why a Deficit Isn't Always a Disaster
Economics isn't a zero-sum game. A trade deficit can actually be a sign of a growing economy.
Think about it. If a country is importing massive amounts of steel, specialized machinery, and high-end technology, it’s usually because it’s building things. India is currently in a massive infrastructure boom. We are building highways, airports, and metro systems at a breakneck pace. That requires stuff India doesn't produce enough of yet.
If the deficit is caused by importing "capital goods"—tools that help you make money later—it’s basically an investment. If the deficit is caused by everyone buying luxury Italian handbags, that’s a different problem. For India, it’s a mix of both, but heavily weighted toward the necessary stuff.
The Shift Toward "Make in India"
The government has been trying to flip the script for a decade. The idea is to turn India into a global manufacturing hub, much like China did in the 90s.
We are seeing some wins. Take Apple, for example. A few years ago, almost every iPhone sold in India was imported. Today, a significant chunk of iPhones—including the latest models—are being assembled in India and even exported to other countries. This has a double-positive effect on the balance of trade: it reduces imports and increases exports simultaneously.
But there are hurdles.
💡 You might also like: Definition of an influencer: Why everyone is wrong about who actually has power
- Logistics costs in India are still higher than in Vietnam or China.
- Labor laws can be tricky for massive factories.
- Power consistency is better than it was, but still not perfect everywhere.
The Role of Remittances
While not technically part of the "balance of trade" (which is just exports minus imports), you have to understand remittances to understand why India survives its trade gap. Indians living abroad—the diaspora in the Gulf, the US, and the UK—send back over $100 billion a year. This is "free" money flowing into the economy, helping to offset the fact that we buy more Toyotas and oil than we sell.
Moving the Needle: What Happens Next?
Is the balance of trade India's biggest weakness? Maybe. But it's also its biggest opportunity.
The move toward "Green Hydrogen" is probably the most important thing to watch over the next ten years. If India can stop being a net importer of energy and start producing its own power via renewables, the trade deficit would practically evaporate overnight.
Also, watch the "China Plus One" strategy. Global companies are terrified of being too dependent on China. They are looking for a backup. India is the only country with a labor force large enough to compete. If India can capture just 10% of the manufacturing that currently happens in China, the trade balance will look very different by 2030.
Actionable Insights for Investors and Observers
If you're looking at the Indian economy, don't just get scared by the "trade deficit" headlines.
- Look at the "Twin Deficit": Keep an eye on both the trade deficit and the fiscal deficit. If both are rising at the same time, that’s when the Rupee gets shaky.
- Sector Focus: The real growth in exports isn't in raw materials; it's in "high-value" sectors like electronics assembly, specialty chemicals, and pharmaceuticals.
- The Energy Transition: Any news regarding Indian domestic oil discovery or massive solar breakthroughs is a direct win for the trade balance.
- Services Margin: Always check the Services Surplus. It’s India’s secret weapon. As long as software and consulting exports stay strong, the merchandise deficit is manageable.
The balance of trade is a moving target. It reflects a country that is still "under construction." It’s hungry for resources because it’s growing, but the goal is to eventually transition from being the world's consumer to being its factory. It’s a long road, and honestly, we’re probably going to be in the red for a while longer. But as long as the "red" is buying the tools to build a "green" future, it’s a trade-off the country seems willing to make.