India’s services sector now holds a 9.8% global market share, while merchandise exports remain at just 1.8%. A recent WTO review highlights that limited use of imported components in manufacturing is creating a bottleneck for goods exports. Improving access to global inputs may be necessary for India to reach its goal of a 10% share in world merchandise trade by 2047.
Detailed Coverage
India’s recent trade performance, as analyzed in the latest World Trade Organization (WTO) review, highlights a growing divide between its high-performing services sector and its lagging merchandise export segment. While India has cemented its position as a global leader in digital and telecommunications services, its goods exports have struggled to maintain momentum, revealing challenges that could influence future industrial policy.
Services Sector Growth
The services sector continues to be a primary driver of India's external trade. In the 2024-25 fiscal year, exports from this sector climbed to approximately $387.6 billion. A significant portion of this is attributed to telecommunications, computer, and information services, where India now ranks as the world's second-largest exporter. These services accounted for $183.3 billion of the total, benefiting from a digital-first delivery model that avoids the complex logistics and infrastructure constraints often associated with physical goods.
The Merchandise Export Bottleneck
In contrast, merchandise exports have shown slow progress. Between 2021-22 and 2024-25, these exports grew from $422 billion to $437.7 billion, representing a compound annual growth rate of 1.2%. This modest growth has contributed to a merchandise trade deficit of $283.5 billion. While sectors such as mobile phone manufacturing and generic pharmaceuticals have seen individual successes, they have not yet been enough to move the needle on India’s total global merchandise share, which remains at 1.8%.
Challenges in Manufacturing Competitiveness
A critical finding from the WTO review is the limited integration of Indian manufacturers into global supply chains. A 2022 World Bank study noted that only 6% of Indian manufacturing firms utilize imported raw materials or intermediate supplies. This is notably lower than the participation rates seen in other regional economies. The report points to high import tariffs as a potential barrier, which can increase the cost of production and make it harder for Indian products to compete on price in international markets.
Strategic Implications for Investors
The government has set an ambitious target to reach a 10% share of global merchandise trade by 2047. To achieve this, industry experts suggest that the focus may need to shift toward increasing the competitive advantage of domestic manufacturing. This could involve policy changes aimed at lowering the cost of imported technology and intermediate components, which would allow manufacturers to scale production more efficiently. For investors, the evolution of trade policy regarding tariffs and ease of importing high-quality components will be important to track, as these factors directly impact the profit margins and global competitiveness of Indian manufacturing firms.