India’s Invisible Trade Surpasses Merchandise Exports

India’s foreign trade landscape has shifted in recent years. While physical goods exports remain important, the export of services and remittances—collectively called invisibles—has overtaken merchandise trade in value. This trend marks the growing role of intangible assets in India’s global economic engagement.

Growth of Merchandise Exports

India’s goods exports grew rapidly from $66.3 billion in 2003-04 to $318.6 billion in 2013-14. After a dip during the Covid-19 pandemic, exports rebounded to $456.1 billion in 2022-23. However, a slight decline followed, with exports falling to $441.8 billion in 2024-25. This fluctuation mirrors global economic cycles and demand for physical products.

Rise of Invisible Exports

Invisible exports include services and private remittances. These have grown steadily and . From $53.5 billion in 2003-04, invisibles rose to $233.6 billion in 2013-14 and further to $576.5 billion in 2024-25. In 2024-25, invisible receipts exceeded merchandise exports by about $135 billion, marking a major shift in India’s trade structure.

Components of Invisible Trade

Service exports form the largest part of invisibles, reaching $387.5 billion in 2024-25. Software services alone increased from $12.8 billion in 2003-04 to $180.6 billion. Other key sectors include business, financial and communication services, which grew to $118 billion. Private remittances also surged to $135.4 billion, reflecting the global Indian diaspora’s economic impact.

Resilience of Invisible Trade

Invisible exports have shown resilience against global shocks like pandemics, financial crises and geopolitical tensions. Unlike merchandise trade, these sectors have expanded without heavy reliance on bilateral trade agreements or production-linked incentives. This stability supports India’s foreign exchange earnings and economic stability.

India Versus China – Trade Profiles

India runs a large merchandise trade deficit, which doubled from $147.6 billion in 2013-14 to $287.2 billion in 2024-25. However, surpluses in invisible trade helped keep the overall current account deficit manageable at $23.4 billion. In contrast, China has huge goods trade surpluses but a deficit in invisibles. China remains the factory of the world while India is increasingly the office of the world, specialising in services and human capital exports.

Impact on Economic Policy

India’s trade negotiations continue to focus on tariff barriers for goods. However, the invisible trade sector remains largely outside these discussions. The growing importance of services and remittances calls for policy adjustments to support these sectors, including visa facilitation, digital infrastructure and international collaboration.

Future Outlook

The dominance of invisible trade suggests India’s economy is evolving towards knowledge-based and service-driven growth. This trend may insulate the country from global manufacturing volatility. Strengthening the invisible economy could boost foreign exchange reserves and improve the country’s global economic standing.

Questions for UPSC:

1. Critically analyse the impact of invisible trade on India’s balance of payments with suitable examples.
2. Explain the differences between merchandise and services trade and how they affect economic policy formulation in India.
3. What are the factors that contribute to the resilience of the services sector in global trade? How can India leverage this for sustainable economic growth?
4. With reference to India and China, underline the role of trade composition in shaping their respective economic models and global competitiveness.

Answer Hints:

1. Critically analyse the impact of invisible trade on India’s balance of payments with suitable examples.

1. Invisible trade includes services exports and private remittances, now exceeding merchandise exports in value.
2. In 2024-25, invisible receipts were about $135 billion higher than merchandise exports, reversing the earlier trend.
3. Services exports (e.g., software, business services) rose from $26.9 billion (2003-04) to $387.5 billion (2024-25), showing rapid growth.
4. Private remittances from the Indian diaspora reached $135.4 billion, providing a stable foreign exchange source.
5. Invisible trade surpluses offset India’s large merchandise trade deficits, reducing the overall current account deficit to $23.4 billion in 2024-25.
6. This diversification makes India’s balance of payments more resilient to global shocks affecting goods trade, such as pandemics or tariff wars.

2. Explain the differences between merchandise and services trade and how they affect economic policy formulation in India.

1. Merchandise trade involves physical goods crossing borders; services trade involves intangible exports like IT, finance, and remittances.
2. Goods exports are subject to tariffs, customs regulations, and supply chain logistics; services trade depends on digital infrastructure, skilled labor, and visa policies.
3. Merchandise trade is more vulnerable to global economic cycles, pandemics, and geopolitical conflicts than services trade.
4. India’s trade policies focus heavily on tariff reduction and trade agreements for goods, while services trade remains less regulated and outside major trade negotiations.
5. The growing importance of services calls for policy shifts toward digital infrastructure, visa facilitation, and international collaboration to enhance competitiveness.
6. About these differences helps tailor economic policies to support both sectors effectively for balanced growth.

3. What are the factors that contribute to the resilience of the services sector in global trade? How can India leverage this for sustainable economic growth?

1. Services exports are less dependent on physical supply chains, making them less vulnerable to disruptions like pandemics or trade wars.
2. Diverse service sectors (IT, financial, communication, R&D) reduce concentration risk and enhance stability.
3. Global demand for knowledge-based and digital services continues to grow, providing long-term growth opportunities.
4. Services exports require skilled human capital, which India has in abundance, particularly in IT and professional services.
5. Minimal reliance on bilateral trade agreements allows organic growth of services exports.
6. India can invest in digital infrastructure, skill development, and visa policies to further boost services exports and sustain economic growth.

4. With reference to India and China, underline the role of trade composition in shaping their respective economic models and global competitiveness.

1. China is the factory of the world, with massive goods exports ($3,409 billion in 2024) and large merchandise trade surpluses.
2. India is the office of the world, with dominant services exports and strong invisible trade surpluses offsetting goods trade deficits.
3. China’s goods trade surplus ($768 billion) contrasts with its large invisible trade deficit ($344.1 billion), reflecting import of services.
4. India runs large merchandise trade deficits but compensates through services and remittance surpluses, keeping current account deficits manageable.
5. China’s model emphasizes manufacturing and export-led growth; India focuses on knowledge-based, service-driven growth leveraging human capital.
6. The differing trade compositions influence policy priorities – China invests in manufacturing infrastructure, India in education and digital services.