India's services exports grew 13.4 per cent year-on-year to $37.24 billion in April 2025, even as geopolitical turbulence in West Asia pushed up energy costs and widened the merchandise trade gap, according to a report by B2K Analytics released on Tuesday, 26 May. Services imports, meanwhile, fell marginally to $16.66 billion, helping narrow India's overall trade deficit — including both merchandise and services — to $7.8 billion for the month.

Services Sector Offsets Merchandise Pressure

The strong services performance proved a critical buffer against a deteriorating goods trade picture. Merchandise exports rose 13.8 per cent to $43.56 billion, but imports surged 10 per cent to $71.94 billion, leaving a merchandise trade deficit of $28.38 billion — up from $27.10 billion a year earlier. According to the B2K Analytics report, higher crude oil prices and rising energy-related costs, driven by ongoing West Asia tensions, were the primary culprits behind the swelling import bill.

West Asia Disruptions and the Energy Equation

The closure of the Strait of Hormuz and stalled US-Iran peace negotiations have significantly disrupted global energy supply chains, the report noted, resulting in elevated oil prices and renewed inflationary pressure across major economies. In response, Russia emerged as a key energy supplier for India, with New Delhi increasing crude purchases amid supply disruptions in the Gulf region. This pivot reflects a pattern that has deepened since 2022, when Indian refiners began aggressively sourcing discounted Russian barrels.

Export Diversification Gaining Ground

The United States remained India's largest export destination during the period. However, exports to Singapore, the UAE, Bangladesh, and the Netherlands recorded strong sequential growth, underscoring India's ongoing effort to diversify trade partnerships and reduce concentration risk. India's export basket continues to be anchored in manufacturing and commodity-linked sectors, while the import side is dominated by energy, electronics, and precious metals.

Risks to the External Sector Outlook

The B2K Analytics report flagged rising crude prices, rupee depreciation, and geopolitical instability as the three key risks to India's external sector and broader economic growth in FY27. At the same time, the firm noted that a weakening rupee could enhance India's export competitiveness by making Indian goods cheaper for overseas buyers — a potential silver lining if sustained.

Government Eyes $1 Trillion Export Target

Despite the headwinds, Union Minister of Commerce and Industry Piyush Goyal has stated that the government is targeting a $1 trillion export figure for FY2027, driven by India's new trade agreements. The ambition is significant: India's total exports — goods and services combined — currently stand well short of that threshold, making the pace of services growth and trade diversification critical to closing the gap. Whether the services sector can sustain double-digit growth while merchandise trade faces structural cost pressures will be a defining question for India's FY27 economic trajectory.