India’s Trade Outlook: Record Services Surplus and Impact of US Tariffs
India is set to see a big boost in its services trade, with experts expecting a record surplus of around $205–207 billion in the financial year 2026. Despite challenges in exporting goods due to US tariffs, India’s services sector is performing strongly and helping the economy stay resilient.
In the latest report, analysts noted that India’s current account deficit (CAD) shrank sharply to just $2.4 billion in the first quarter of FY26. This is a big improvement from the $8.6 billion deficit recorded a year earlier. The lower deficit shows India’s overall economic health is holding up thanks to higher remittance inflows and a growing services trade surplus.
Earnings from services, called “invisibles,” increased by nearly 20% to $66.1 billion in Q1 FY26. This growth helped offset the merchandise trade deficit, which was about $68.5 billion. The strong performances in services are helping India keep its current account balanced, at least for now.
However, the report warns that the deficit might widen again in the second quarter to between $13 and $15 billion, mainly because the gap in goods imports and exports (merchandise trade) is expected to grow. This is partly due to recent US tariffs on Indian products.
The US imposed a 50% tariff on some Indian exports like textiles, diamonds, seafood, and leather products. If these tariffs stay in place through the year, ICRA predicts India’s current account deficit could grow to over 1% of its GDP in FY26, up from 0.6% last year.
On the financial side, India saw net inflows of $8.1 billion in the first quarter of FY26, reversing previous outflows in late 2025. But foreign exchange reserves, which stood at $691 billion as of August, increased by only $4.5 billion in the recent quarter — less than previous periods.
The Indian Rupee (INR) has depreciated by about 3.2% against the US dollar in 2025. Experts expect the USD/INR exchange rate to stay between 87.0 and 89.0 in the near future.
Overall, the outlook for India’s trade depends heavily on how US tariffs develop. If tariffs continue to affect Indian exports, the country might see a higher current account deficit in the coming months. But India’s strong services sector and steady foreign investments are helping keep the economy on track.
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