India's Trade Surplus With US Could Halve by 2031, EY Warns
EY predicts India's trade surplus with the US may nearly halve by 2031 if imports grow faster than exports, while total trade hits $500 billion.
India's trade surplus with the United States could see a dramatic reduction, potentially halving from its 2025 levels by the year 2031. This projection comes from a detailed report by Ernst & Young (EY), which suggests that while the surplus may shrink, the overall volume of bilateral trade could soar to a massive USD 500 billion.
The Growth Equation: Imports vs Exports
According to the EY analysis, this shift in the trade balance depends on specific growth trajectories. The report indicates that if India's exports to the US grow at a Compound Annual Growth Rate (CAGR) of 10 per cent, while imports from the US rise at a faster pace of approximately 16 per cent, the merchandise and services trade surplus would be slashed by nearly half.
The report suggests that India could strategically aim to reduce its combined goods and services trade surplus with the US by two-thirds by FY31 by ensuring that imports from the American market grow more rapidly than exports to it.
A Risky Concentration of Trade
A key concern highlighted by EY is the concentration of India's trade imbalances. The report points out that India's trade surplus is heavily reliant on the US, while its merchandise trade deficit is significantly driven by imports from China, energy-exporting nations, and countries providing strategic inputs like chemicals, machinery, and electronics.
This concentration makes India's economic position vulnerable. The report cautions that unpredictable policy changes, such as sudden tariff hikes or restrictions imposed by the US on Indian exports, could destabilize this imbalance.
Recommendations for Stability
- US Trade: Focus on increasing the growth rate of imports from the US relative to exports to balance the surplus.
- China Trade: Narrow the merchandise trade deficit through aggressive export promotion and the implementation of import substitution strategies.
The Broader Trade Landscape
The EY report also provides a wider perspective on India's external trade position, noting a persistent tug-of-war between services and merchandise.
India continues to enjoy a rising surplus in services trade, which grew from 3.4 per cent of GDP in FY22 to 5.6 per cent in FY26. However, this is offset by a sustained and growing deficit in merchandise trade.
Historically, India's current account balance has fluctuated between a deficit of 4.8 per cent and a surplus of 2.3 per cent of GDP, averaging a deficit of 1.2 per cent between FY01 and FY26. The report notes that the merchandise trade deficit has been particularly volatile, with spikes seen during FY12, FY13, and FY14, primarily driven by global crude oil prices exceeding USD 100 per barrel.