Services sector may catch up with merchandise exports in FY26
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Even as global headwinds weigh on India's merchandise exports, the services sector is emerging as a vital cushion, delivering robust growth and helping anchor the country's external balance.
At the current pace, services could catch up with merchandise exports in 2025-26, on an annual basis, marking a significant structural shift in India's external trade dynamics, showed figures shared by exporters.
In the first five months of 2025, services exports rose 16% year-on-year to $173 billion, while the services trade surplus surged 21% to $90 billion, according to data from the Union commerce ministry, offering crucial support to the current account at a time of volatility in goods trade.
Merchandise exports slipped 1.4% to $192.53 billion, and the trade deficit widened nearly 15% to $106.88 billion during the same period.
The strong performance underscores the resilience of India's technology, consulting, financial, and business services, even as traditional goods trade remains vulnerable to a turbulent global landscape.
Counterbalance
June services exports are expected to post a multi-month high, bolstered by record output during the month. The HSBC India Services PMI, compiled by S&P Global, rose to a 10-month high of 60.4 in June, from 58.8 in May, reflecting strong sales, new orders, and buoyant demand.
The index has remained well above the 50-mark, indicating continued expansion, since January.
The Federation of Indian Export Organisations (FIEO) expects this momentum to continue in the coming months and sees services as a key growth engine in achieving the government's ambitious $1 trillion export target for 2025-26, up from $825 billion in the previous fiscal.
'We expect about a 24% annual increase in services exports in value terms in 2025-26, on the back of strong growth reported in recent months," said S.C. Ralhan, president, FIEO.
'For merchandise exports, we are expecting a 10% growth in 2025-26, but there is a condition: if the war (Russia-Ukraine) continues, it may come down to 5-6%," he added.
In absolute terms, the FIEO projects services exports to reach around $476 billion in 2025-26, while merchandise exports are expected to range between $459 billion and $481 billion, indicating that services exports could catch up with goods exports by the end of the fiscal year.
In 2024-25, merchandise exports stood at $437.42 billion, marginally higher than the $437.07 billion recorded in the previous year, while services exports rose to $383.51 billion from $341.06 billion.
'The merchandise exports depend on several global factors, like the ongoing wars and US trade tariffs. We do expect the Indian government to sign a bilateral trade agreement with the US soon," Ralhan said.
'However, services exports will not be impacted as the agreement mainly deals with merchandise trade," he added.
A spokesperson of the ministry of commerce didn't respond to emailed queries.
Leading services exports
Software and IT services, classified under telecommunications, computer, and information services, account for around $150 billion annually, roughly half of India's total services exports, according to the New Delhi-based think tank Global Trade Research Initiative (GTRI).
Other business services, including consultancy, engineering, R&D, and technical services, follow, contributing about $80 billion, or a quarter of overall services exports.
'The growth in this sector is mainly driven by the rise of global capability centres (GCCs) in India," the GTRI report noted.
Meanwhile, India Ratings expects services trade to largely remain insulated from tariffs, though the broader uncertainty in global trade could cast a shadow on the sector.
'The global trade in commercialservicesgrew at a healthy 6.8% on-year in 2024. The globalservicesPMI moderated to 52.0 in May 2025 from 53.8 in December 2024. However, it has remained in expansion for the past 29 months," India Ratings said in a recent report.
However, the rating agency expects theservicestrade surplus to moderate to around $48 billion in 1QFY26.
The World Trade Organization (WTO) also expects global services trade volume to grow 4% on-year in 2025, lower than its earlier baseline forecast of 5.1%.
This follows a strong 6.8% growth in global commercial services trade in 2024.
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