India and the US Share a Balanced Trade in Services Amid Ongoing Trade Tensions

Strategic Insights -

The economic relationship between the United States and India has been pushed to the brink of rupture, with President Trump threatening to impose 50% tariffs on Indian goods. However, the two countries share a balanced trade in services, with both sides benefitting from the exchange of corporate functions, education, finance, and consulting. This mutually beneficial trade has grown by double digits in recent years, with services being increasingly sophisticated, from customer service and telemarketing to cutting-edge research and engineering work.

Key Takeaways:

  • The trade in services between the US and India has been growing by double digits in recent years, with a focus on high-value tasks such as research and engineering.
  • Two-thirds of Fortune 500 firms rely on offshore operations in India, employing millions of Indians in upper-middle-class jobs.
  • The US sells more value in services to India than it buys, with critical categories including transportation, education, finance, and consulting.
  • India sends the largest number of foreign students to the US, with their expenses counting as an export of services from the US to India.
  • The value of services provided by India-based offices of American companies helps bolster the profits of the parent companies.
  • Goods and services trade between the US and India is nearly equal, with the countries running a nearly balanced exchange of services for several years.
  • The bilateral services trade is driven by the unique model of corporate functions that can be handled by India's labor force.
  • Important services traded between the two countries include transportation, education, finance, and consulting.
  • A big reason for the balanced trade in services is the presence of multinational companies with American headquarters in India's biggest cities, which employ millions of Indians.
  • India's efforts to catch up with other Asian economies, such as "Make in India," have been successful, but manufacturing employment has shrunk in the past decade, outpaced by employment in services.

Statistics:

  • In 2024, the trade deficit in goods between the US and India was $46 billion.
  • The trade in services between the US and India topped $200 billion last year.
  • Two-thirds of Fortune 500 firms rely on offshore operations in India.
  • The US sells more value in services to India than it buys, with critical categories including transportation, education, finance, and consulting.
  • In 2030, foreign companies' offshore office parks in India are expected to employ at least 2.5 million Indians.

Sources:

  • The New York Times, February 2023
  • Interview with Amitendu Palit, a former Indian trade official and senior research fellow at the National University of Singapore.