Trends in India’s Foreign Trade: Growth, Composition, and Direction

In 1991, India’s foreign trade was a fraction of what it is today, hemmed in by licensing rules, high tariffs, and a rupee that wasn’t even convertible on the current account. Three decades of reform later, India ships goods and services worth close to a trillion dollars every year and figures among the world’s top twenty merchandise exporters. This piece tracks how that transformation happened, what India sells and buys today, and which countries sit at the centre of its trade map.

From a closed economy to a global trading power 🔗

Before the 1991 reforms, India’s trade policy was built around import substitution. The idea was to produce as much as possible domestically and import only what was unavoidable. This kept foreign trade small and inward-looking. The share of India’s merchandise exports in world exports stood at barely 0.6 per cent in the early 1990s.

The New Economic Policy of 1991 dismantled licensing controls, lowered tariffs, and opened the current account. Exporters gained easier access to imported inputs, and the rupee’s devaluation made Indian goods more competitive abroad. The results took time to show, but they compounded steadily. By 2024, India’s share in world merchandise exports had risen to 1.8 per cent, with exports worth about USD 443 billion. On the import side, India’s global share climbed even faster, touching 2.8 per cent in the same year.

Growth wasn’t uniform across the three decades. The pace of export expansion was moderate through the 1990s as firms adjusted to the new rules, then accelerated sharply in the 2000s as IT services, pharmaceuticals, and engineering goods found strong overseas demand. This second-decade surge is why economists often describe post-reform trade growth as front-loaded toward the 2000s rather than evenly spread.

How much has India’s export value actually grown? 🔗

Numbers make the trend concrete. Comparing 2013-14 with 2023-24, India’s combined merchandise and services exports rose from roughly USD 466 billion to about USD 778 billion, a jump of nearly 67 per cent in a decade. Over the same period, India’s share in world merchandise exports improved and its global ranking among exporters moved up several places.

Growth has not been a straight line upward. Global shocks such as the 2008 financial crisis, the pandemic-driven slump in 2020, and softer global demand in 2023 caused temporary dips or slower years. Even so, the trajectory since liberalisation has been one of consistent expansion, interrupted rather than reversed by external headwinds. The Economic Survey for 2024-25 pointed out that India’s exports grew steadily even amid global trade policy uncertainty, supply chain disruptions from the Red Sea crisis, and rising protectionism among trading partners.

What does India sell to the world? The changing export basket 🔗

The composition of India’s exports has changed as much as their value. This shift tells you a lot about how the underlying economy has evolved.

The pre-reform basket: agriculture and light manufactures 🔗

In the decades right after independence, India’s exports leaned heavily on primary and semi-processed goods: tea, jute, cotton textiles, and handicrafts. These items reflected an economy still dominated by agriculture and low-value manufacturing, with limited industrial capacity to produce anything more sophisticated for export.

The post-reform basket: engineering, petroleum, and electronics 🔗

Liberalisation, coupled with sustained industrial investment, changed this mix. Engineering goods have become the single largest export category, covering machinery, transport equipment, and industrial products. Petroleum products, largely refined fuel re-exported after processing imported crude, now form a major share too; their contribution to India’s total exports rose from 13.2 per cent in FY20 to 21.1 per cent in FY23, helped by discounted crude sourced after 2022. Electronics is the newer growth story: exports of goods like smartphones climbed sharply over the past five years, aided by production-linked incentive schemes and the broader Make in India push.

Traditional labour-intensive sectors such as gems and jewellery and readymade garments still matter, but their share of the total basket has gradually declined as newer, higher-value categories have grown faster. This is what economists mean by export diversification: not that old sectors disappear, but that the economy stops depending on just one or two products and spreads its trade risk across many industries.

On the import side, the basket still reflects India’s structural dependence on energy. Petroleum crude and products remain the single largest import category by value, alongside gold, electronics components, and machinery needed to feed domestic manufacturing.

Services trade: India’s quieter but faster-growing story 🔗

While merchandise trade gets most of the attention, India’s services exports have grown even faster in relative terms. India’s share of global commercial services exports roughly doubled between 2005 and 2022, moving from about 2 per cent to 4.4 per cent, according to a joint World Bank and WTO study. This makes services trade one of the clearest success stories of India’s post-reform economy.

IT, digital delivery, and beyond 🔗

Software services, business process outsourcing, and IT consulting built India’s early services export strength, and that base has now expanded into a broader category called digitally delivered services, which covers everything from cloud computing to financial and professional services delivered over the internet. In 2023, India’s exports of digitally delivered services touched USD 257 billion, up 17 per cent from the previous year, making India the world’s fourth-largest exporter in this category, trailing only the United States, the United Kingdom, and Ireland.

Beyond IT, India has also built strength in travel and medical tourism, transport services linked to its shipping and logistics sector, and financial services. Services exports now cushion India’s overall trade balance, since the country consistently runs a large deficit on the merchandise side but earns a healthy surplus on services.

Direction of trade: who buys from India, and who sells to it? 🔗

India’s trading partners have diversified alongside its product basket. The United States remains India’s single largest export destination by a wide margin, followed by the UAE, the Netherlands, and China. On the import side, China leads by a significant distance, followed by Russia, the United States, the UAE, and Saudi Arabia.

This pattern captures two of the more interesting features of India’s trade direction. First, India’s largest export markets and largest import sources are almost entirely different countries, which is typical for an economy still building its manufacturing base while selling services and finished goods abroad. Second, China’s dominant position as an import source, despite modest direct export flows in the other direction, reflects India’s continuing reliance on Chinese intermediate goods, electronics components, and machinery for its own manufacturing and export activity. Russia’s rise up the import rankings since 2022 is almost entirely explained by discounted crude oil purchases.

What this trajectory tells us about the Indian economy 🔗

Put together, three trends define India’s foreign trade since the 1990s: exports have grown many times over in absolute value, the product basket has shifted from primary commodities toward engineering goods, petroleum, and electronics, and services, especially digitally delivered ones, have grown fast enough to become a structural strength rather than a side story. None of this means the picture is problem-free. India still runs a persistent merchandise trade deficit, remains heavily dependent on imported energy and Chinese intermediate goods, and its share of world exports, while rising, is still well behind that of China or the United States. But the direction of travel, from a largely closed, commodity-dependent economy to a diversified, services-strong trading nation, is unmistakable, and it continues to shape policy priorities around manufacturing incentives, trade agreements, and export competitiveness today.

What do you think? Do you think India’s growing reliance on petroleum product exports is a sustainable long-term strategy, or a short-term gain tied to specific global conditions? And as digitally delivered services grow faster than traditional goods trade, should India’s trade policy start treating services exports as the primary growth engine rather than a supplement to manufacturing?

References

1. https://www.dgciskol.gov.in/writereaddata/Downloads/20250819155439A%20Quick%20View%20of%20Indias%20Trade%20Scenario.pdf
2. https://www.businesstoday.in/latest/economy/story/indias-exports-jump-67-in-a-decade-reaching-778-billion-456450-2024-12-06
3. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2097911&reg=48&lang=2
4. https://www.business-standard.com/economy/news/petroleum-electronics-exports-lead-india-s-post-pandemic-trade-rejig-123041700978_1.html
5. https://www.newsonair.gov.in/india-doubles-its-share-of-global-commercial-services-exports-between-2005-and-2022-world-bank-wto-report/
6. https://www.businesstoday.in/technology/story/india-scores-ahead-of-china-in-digital-services-exports-in-2023-425115-2024-04-11
7. https://wits.worldbank.org/CountryProfile/en/Country/IND/Year/LTST/Summarytext