India’s Services Sector Shines with Rising Exports and Imports
India’s services sector is performing well, with services exports increasing by 9.8% to USD 180 billion and imports rising by 9.6% to USD 62.9 billion, according to a report by Bank of Baroda. This has resulted in a services trade balance of USD 82.6 billion, surpassing last year’s figures. However, the growth in exports and imports has been modest. The current account deficit for FY25 is expected to remain between 1% and 1.2% of GDP.
Stable Foreign Direct Investment (FDI) and strong Foreign Portfolio Investment (FPI) inflows, supported by favorable interest rates and policies, are expected to bolster the external account. Although a delayed monetary easing cycle might slow export recovery, the macroeconomic conditions suggest a positive outlook for trade improvement in the medium term. The trade deficit may face challenges as import growth could outpace export recovery.
In September, the trade deficit improved due to a significant drop in gold imports, which fell to USD 4.4 billion from USD 10.1 billion. However, the trade deficit for the first half of FY25 widened to USD 137.4 billion from USD 119.2 billion last year, driven by faster import growth. Exports increased by 1% to USD 213.2 billion, led by pharmaceuticals, engineering goods, and chemicals, while agricultural exports remained subdued.
Non-oil, non-gold imports, including non-ferrous metals, capital goods, and electronics, showed strong growth, indicating demand for capital investment and consumer spending. Imports of pulses surged to boost domestic production and control inflation. The import trajectory is expected to rise due to global price increases for industrial inputs and metals. Global demand remains soft, especially in the Eurozone and China, and oil price volatility could increase the import bill. Persistent gold prices and increased domestic demand during the festive season may also pressure the trade balance. Imported inflation risks could rise if the Indian rupee remains weak.
Doubts Revealed
Services Sector -: The services sector includes businesses that provide services rather than goods, like banking, IT, and tourism. In India, this sector is very important for the economy.
Exports -: Exports are goods or services that a country sells to other countries. When India sells its services to other countries, it earns money, which is good for the economy.
Imports -: Imports are goods or services that a country buys from other countries. India buys services from other countries, which costs money.
Trade Balance -: Trade balance is the difference between what a country earns from exports and what it spends on imports. A positive trade balance means a country earns more than it spends.
Current Account Deficit -: This is when a country spends more on imports and other expenses than it earns from exports and other income. It’s like spending more money than you earn.
GDP -: GDP stands for Gross Domestic Product. It’s the total value of all goods and services produced in a country. It’s like the country’s report card for its economy.
FDI -: FDI stands for Foreign Direct Investment. It’s when people or companies from other countries invest money in businesses in India.
FPI -: FPI stands for Foreign Portfolio Investment. It’s when people or companies from other countries invest in Indian stocks and bonds.
Monetary Easing -: Monetary easing is when a country’s central bank makes it easier to borrow money, usually by lowering interest rates. This can help boost the economy.
Trade Deficit -: A trade deficit happens when a country imports more than it exports. It means the country is spending more money on buying from other countries than it is earning from selling to them.
Global Demand -: Global demand refers to how much people around the world want to buy goods and services. If global demand is soft, it means people are buying less.
Oil Price Volatility -: Oil price volatility means that the price of oil goes up and down a lot. This can affect how much India has to pay for oil, which can change the import bill.
