India’s external sector continues to display resilience amidst global headwinds of economic and trade policy uncertainties, states the Economic Survey 2024-25 tabled in the Parliament today by the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman.

INDIA’S TRADE PERFORMANCE

The Economic Survey notes that the total exports (merchandise and services) registered a steady growth of 6 percent in the first nine months of Financial Year 2024-25. Growth in services and goods exports, excluding petroleum and gems and jewellery, was 10.4 per cent. This indicates that Indian manufacturing, agriculture and services exports were able to compete with global competition. Total imports during the same period registered a growth of 6.9 per cent.

Disruptions in global trade due to Red Sea crisis, Ukraine war and recent drought in the Panama Canal, allied with increased protectionist tendencies shown by many countries, have created uncertainties. The number of Non-Tariff Measures (NTMs) that restrict international trade have also increased over the last few years. The Technical Barriers to Trade (TBT) affect 31.6 per cent of the product lines, covering 67.1 per cent of the global trade as of December 2024. This is followed by export-related measures, affecting 19.3 per cent of the product lines and covering 31.2 per cent of the global trade. Sectors most affected by NTMs include agriculture, manufacturing, and natural resources.

FREE TRADE AGREEMENTS

The Survey notes that India requires to assess the situation and develop a forward looking strategic trade roadmap that leverages its strengths. India is in a process of negotiating a number of Free Trade Agreements with countries and trading blocks. For example, in the textile sector, the UAE-India Comprehensive Economic Partnership Agreement (CEPA) (2022) has helped reduce India’s textile tariffs with a significant market. India is actively working towards negotiating trade deals with top importers such as the EU and the UK. The Survey notes that India is also adopting the strategy to diversify its export basket and target new markets.

SERVICES EXPORTS

Services exports from India have shown a multi-sectoral presence in global exports, with notable contributions across several sectors. India’s share in global services exports has more than doubled, reaching around 4.3 per cent in 2023 from 1.9 per cent in 2005. In ‘Telecommunications, Computer, & Information Services’, India commands 10.2 per cent of the global exports market (ranking 2nd largest exporter in the world), reflecting its strong position in IT outsourcing, software development, and digital services. As the country becomes a hub for Global Capability Centres and continues to innovate, focusing on skill development and strategic policy interventions will be key to sustaining this momentum, the Survey notes.

The ‘Other Business Services sector’ also plays a crucial role, with India holding 7.2 per cent of the world share (ranking 3rd largest exporter in the world), driven by its expertise in professional and consulting services. There are opportunities for growth in international tourism and global transport networks. India's e-commerce export also holds immense potential to grow significantly and become a key contributor to the country’s GDP. It is driven by various elements such as the rise of technology-powered advancements like online payments, localised delivery services, data-driven interactions with customers, and digital marketing.

MEASURES TO STRENGTHEN EXPORTS

The development of logistics hubs, investments in infrastructure, and policy reforms to improve supply chain efficiency are measures that will drive Indian exports sector. Directorate General of Foreign Trade (DGFT) has launched ‘Trade Connect e-Platform’, which is a single window initiative enabling exporters to add newer markets. The e-platform aims to transform the international trade landscape for Indian exporters, especially MSMEs. The platform, developed in collaboration with key partners, including the Ministry of MSME, EXIM Bank, Department of Financial Services, and the Ministry of External Affairs, will address information asymmetry by offering exporters comprehensive support, resources and near real-time access to critical trade-related information.

FOREIGN DIRECT INVESTMENT (FDI)

The FDI inflows have shown signs of revival in the first eight months of FY25, though net FDI inflows declined relative to April-November 2023 due to a rise in repatriation/disinvestment. The Economic Survey states that the gross FDI inflows increased from USD 47.2 billion in the first eight months of FY24 to USD 55.6 billion in the same period of FY25, a YoY growth of 17.9 per cent. The Survey highlights that over the long term, FDI inflows into India had surpassed the USD 1 trillion mark from April 2000 to September 2024, solidifying the country’s position as a safe and significant global investment destination.

The Survey notes that while services sector remained the largest recipient of FDI, accounting for 19.1 per cent of total equity inflows in H1 of FY25, and other significant sectors attracting foreign investments included computer software and hardware (14.1 per cent), trading (9.1 per cent), non-conventional energy (7 per cent), and cement & gypsum products (6.1 per cent). Survey states that despite the short-term volatility in global markets, triggered by factors such as inflationary pressures, rising interest rates in developed economies, and geopolitical tensions, the long-term outlook for FDI in India remains favorable. Survey emphasizes that India’s robust economic fundamentals, ongoing structural reforms, and growing consumer market position makes it a key destination for foreign investments.

Dispelling the concerns about recent scrutiny on concerns about declining FDI into India, the Survey says that a broader analysis reveals that FDI flows globally have been hampered by economic uncertainty, geopolitical tensions, and rising borrowing costs. It adds that along with increasing gross FDI inflows, there is an accompanied rise in repatriations as international companies realized returns from investments owing to India's strong stock market through secondary sales and Initial Public Offerings, indicating investor confidence. Survey emphasizes that the depth and resilience of the Indian capital market offers profitable exits for direct investors, boosting future investments.

CURRENT ACCOUNT DEFICIT (CAD)

Noting that India runs a CAD, and its investment needs are much larger considering the size of its economy, the Survey suggests supplementing domestic savings with reasonably large foreign savings expands the scope for capital formation. Noting that the Developed countries, too, were wooing investments, and India was not competing with other emerging economies alone, the Survey suggests that India must pull out all the stops wooing FDI and making itself more attractive for foreign investors and to make the available and existing investments deliver more by improving India’s investment efficiency through deregulation and Ease of Doing Business.

FOREIGN PORTFOLIO INVESTMENT (FPI)

On the FPIs, the Economic Survey notes that it shows a mixed trend in FY25 so far. Survey explains that the factors such as concerns about slowing earnings growth, high valuations, rising geopolitical tensions, and recent developments in China led FPIs to withdraw significant funds from Indian equities. Additionally, it states the factors such as India’s strong macroeconomic fundamentals, favorable business environment and robust economic growth have encouraged investors to reverse the outflow trend.

FOREIGN EXCHANGE RESERVES

Touching upon India’s foreign exchange reserves, Economic Survey states that it stood at USD 640.3 billion as of the end of December 2024. It adds that the reserves were sufficient to cover approximately 90 per cent of the country’s external debt of USD 711.8 billion as of September 2024, reflecting a strong buffer against external vulnerabilities.

EXTERNAL DEBT

Highlighting that India’s external debt has remained stable over the past few years, the Economic Survey states that this has helped maintain external sector stability at a time when the rest of the world is affected by geopolitical headwinds. Survey notes that the external debt to GDP ratio rose slightly from 18.8 per cent of the GDP at the end of June 2024 to 19.4 per cent at the end of September 2024, while its ratio to foreign exchange reserves decreased to 18.9 per cent at the end of September 2024 from 20.3 per cent at the end of June 2024.

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