Is India’s Services Trade Surplus Set to Reach a Record $205–207 Billion in FY26?
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Synopsis
India's services trade surplus is on track to achieve a historic milestone of $205–207 billion in FY26, despite challenges from US tariffs affecting merchandise exports. This significant shift in the economic landscape is driven by robust remittances and a resilient services sector. Discover the implications for India’s economy and trade balance.
Key Takeaways
- Projected services trade surplus: $205–207 billion in FY26
- Current account deficit: Reduced to $2.4 billion in Q1 FY26
- Impact of US tariffs: Significant pressure on merchandise exports
- Financial inflows: Net inflows of $8.1 billion in Q1 FY26
- Forex reserves: Standing at $691 billion as of August 22
New Delhi, Sep 3 (NationPress) Despite the challenges facing merchandise exports due to US tariffs, India’s services trade surplus is projected to reach an unprecedented $205–207 billion in FY26, according to a report released on Wednesday.
The country's current account deficit (CAD) has significantly reduced to $2.4 billion (0.2 percent of GDP) in Q1 FY26, a notable improvement from the $8.6 billion deficit (0.9 percent of GDP) recorded during Q1 FY25.
This outcome surpassed ICRA's previous estimate of 0.7 percent of GDP, largely supported by robust remittances and an expanded services trade surplus.
Revenue from invisibles surged by 19.9 percent (year-on-year) to $66.1 billion in Q1 FY26, counterbalancing the merchandise trade deficit of $68.5 billion.
ICRA has indicated that the CAD is anticipated to widen in Q2 FY26, reaching $13–15 billion (1.5 percent of GDP), primarily due to a significant increase in the merchandise trade deficit.
“The recently imposed 50 percent US tariff on Indian goods is likely to put considerable strain on India's exports, particularly in textiles, diamonds, seafood, and leather.
If these tariffs remain throughout the fiscal year, ICRA forecasts India's CAD could surpass 1 percent of GDP in FY26, compared to 0.6 percent in FY25,” the report anticipated.
India experienced net financial inflows of $8.1 billion in Q1 FY26, following outflows in H2 FY2025. However, the growth in reserve assets slowed to $4.5 billion from $8.8 billion in Q4 FY25, as noted in the ICRA report.
As of August 22, forex reserves stood at $691 billion. The INR saw a 3.2 percent depreciation against the USD in 2025 (up to September 1).
ICRA projects the USD/INR exchange rate to fluctuate within the 87.0–89.0 range in the short term.
Regarding the outlook, the report emphasized that the trajectory of the CAD will be significantly influenced by developments related to tariffs with the US.
Point of View
It's vital to recognize the resilience of India's economy, particularly in the services sector. While the challenges posed by US tariffs are significant, the projected growth in services trade surplus is a testament to India's adaptability and potential. This development emphasizes the need for strategic policies to bolster exports and navigate international trade dynamics.
NationPress
03/09/2025
Frequently Asked Questions
What is the projected services trade surplus for India in FY26?
The projected services trade surplus for India in FY26 is expected to reach a record $205–207 billion.
How has India's current account deficit changed recently?
India's current account deficit narrowed to $2.4 billion in Q1 FY26, significantly down from $8.6 billion in Q1 FY25.
What are the implications of US tariffs on Indian exports?
US tariffs are likely to exert significant pressure on India's exports, particularly in sectors like textiles, diamonds, and seafood.
What is the outlook for the Indian rupee against the USD?
ICRA expects the USD/INR exchange rate to trade in the range of 87.0–89.0 in the near term.
What factors are influencing the current account deficit in FY26?
The current account deficit in FY26 is influenced by a sharp increase in the merchandise trade deficit and tariff-related developments.
