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India’s services exports have crossed the $400-billion mark, but the bigger story is not the milestone itself. It is the increasingly important role that the services economy is playing in offsetting India’s structural merchandise trade deficit.
In 2025-26, India exported an estimated $421.3 billion worth of services, up from $387.5 billion in 2024-25.
More importantly, India’s services export engine is no longer confined to traditional IT outsourcing. Telecommunications, computer and information services accounted for about $206.6 billion, or 49 per cent, of services exports in 2025-26, while business services contributed another $124.2 billion, or 29.5 per cent.
Together, these two categories accounted for nearly four-fifths of India’s services exports.
While merchandise exports such as smartphones, pharmaceuticals and engineering goods continue to attract considerable attention, services exports are becoming an increasingly important source of foreign exchange — and an important counterweight to India’s merchandise trade deficit.
The other side of India’s trade story
In FY2025-26, India exported goods worth about $441.8 billion, against merchandise imports of nearly $775 billion, resulting in a goods trade deficit of approximately $333.2 billion.
Services tell a very different story.
With services exports of $421.3 billion and a rapidly expanding services surplus, the sector has become one of the most important sources of support for India’s external balance.
The official monthly trade data, using the Commerce Ministry’s trade series, puts FY2025-26 services exports at $418.31 billion and services imports at $204.42 billion, resulting in a services surplus of $213.89 billion. The same data puts India’s overall merchandise-plus-services trade deficit at about $119.3 billion.
The difference between the two numbers is striking. India had a merchandise trade deficit of roughly $333 billion. Its services surplus was about $214 billion.
In effect, the services economy offset roughly 64 per cent of the merchandise trade deficit, bringing the overall trade deficit down to about $119 billion.
Put another way, for every $3 of merchandise trade deficit, India’s services economy brought back roughly $2.
This is not a one-year story
The expansion of India’s services surplus has been a long-term trend.
Services exports were around $254.5 billion in 2021-22. They rose to $325.3 billion in 2022-23, $341.1 billion in 2023-24, $387.5 billion in 2024-25 and $421.3 billion in 2025-26.
Global Capability Centres of multinational corporations are performing R&D, analytics, cybersecurity, engineering, design and other specialised functions from India.
The GCC effect
One of the most important changes in India’s services economy has been the rise of Global Capability Centres. The GCC model is different from the traditional outsourcing model. An Indian IT company typically provides a service to an overseas client.
A GCC, by contrast, is part of the multinational company’s own organisation.
As global companies have become more comfortable locating high-value functions in India, the country’s role has moved beyond low-cost delivery.
R&D, product development, analytics, cybersecurity, finance, engineering and other specialised functions are increasingly being performed from India.
This has two implications.
First, India is moving further up the value chain.
Second, the definition of a services export is becoming broader.
The export is no longer necessarily a person sitting in India working on an overseas client’s process.
It can be intellectual property, research, software, analytics, financial expertise or a specialised business capability delivered from India.
Why does the merchandise trade deficit persist?
The strength of services exports should not obscure the structural nature of India’s merchandise trade deficit. India remains heavily dependent on imports of crude oil, LNG and other energy products. Gold demand remains significant.
India also imports large quantities of capital goods, electronics, machinery and other intermediate inputs.
Government initiatives such as production-linked incentives are aimed at strengthening domestic manufacturing and reducing some of these import dependencies.
Without the services surplus, India’s external trade deficit would be substantially larger.
The services surplus therefore acts as a macroeconomic shock absorber — helping moderate the pressure that the merchandise deficit places on the current account, the rupee and India’s external financing requirements.
But the services story is entering a new phase : AI enters
The very sector that has become one of India’s biggest export engines is now facing the biggest productivity disruption in decades. Artificial intelligence is changing the economics of knowledge work.
For three decades, India’s services-export model was built around a relatively simple proposition:
The world has expensive skilled labour. India has skilled labour at a lower cost.
AI potentially changes that equation.
If a team of 100 people can produce the same output as 50 people with AI, the question is no longer simply whether India can provide those 50 people more cheaply.
The question becomes:
Who captures the productivity gain?
Does the customer get lower prices? Does the service provider get higher margins? Do employees become more valuable?
Or does AI create entirely new services that did not previously exist?
That is likely to be the next phase of India’s services story.
From labour arbitrage to intelligence arbitrage
The next could be something very different.
India has:
- a large pool of technical and professional talent;
- a mature technology-services ecosystem;
- English-language capability;
- global delivery experience;
- an expanding GCC ecosystem;
- increasingly sophisticated professional services;
- and now rapidly improving access to AI.
The opportunity is to combine these advantages.
Instead of exporting hours of human labour, India could increasingly export AI-enabled expertise and business outcomes.That would represent a much bigger change than simply using AI to reduce the number of people required to deliver an existing service.
The road ahead
In the first four months of FY2026-27, services exports were estimated at $142.64 billion, compared with $131.15 billion in the corresponding period a year earlier — an increase of about 8.8 per cent. The services surplus during the period was estimated at $69.17 billion.
The question now is whether India can maintain this momentum as artificial intelligence changes the economics of the very services it has become so good at exporting.
The answer may depend less on how many people India can put to work for global companies and more on how much value each person — augmented by technology and AI — can create.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.