New Delhi [India], October 29 (ANI): India's trade surplus with the US could nearly halve from its 2025 level by 2031, while bilateral trade may reach USD 500 billion, if exports grow 10 per cent annually and imports rise 16 per cent, according to a report by Ernst & Young (EY).

The report highlighted that India's trade imbalances remain concentrated among a few countries, with the US accounting for a major share of its trade surplus and China contributing significantly to its merchandise trade deficit.

"India's merchandise trade surplus largely arises from its exports to the US. Similarly, trade deficit primarily arises from its large imports from China, energy-exporting economies and countries from where India imports strategically important inputs such as electronics, machinery and chemicals."

It cautioned that the concentration of India's trade surplus with the US and deficit with China makes its trade imbalance vulnerable to policy changes, particularly unpredictable tariff hikes and other restrictions imposed by the US on Indian exports.

As per EY, India could aim to reduce its combined goods and services trade surplus with the US by two-thirds by FY31 by ensuring faster growth in imports from the US than exports to the country. It also recommended narrowing the merchandise trade deficit with China through export promotion and import substitution.

"Calibrations indicate that if exports to the US of goods and services were to grow by a CAGR of 10.0% while imports from the US increase at a faster rate, say about 16%, India's present merchandise and services trade surplus would be reduced to nearly half its 2025 level while the overall volume of trade covering both goods and services will increase to close to US$500 billion by 2031," it said. 

On India's broader external trade position, the report noted that the country'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.

"While India enjoys a services trade surplus which has been rising in recent years, it suffers from a sustained deficit on merchandise trade account which has also been rising in recent years," it noted. 

Also, India's services trade surplus remained relatively stable at around 4 per cent of GDP between FY09 and FY23, before increasing from 3.4 per cent in FY22 to 5.6 per cent in FY26. In contrast, the merchandise trade deficit has witnessed greater fluctuations, with exceptionally high deficits during FY12, FY13 and, to some extent, FY14, largely due to global crude oil prices averaging above USD 100 per barrel during these years.

"India suffers from a large and growing trade deficit with respect to goods, and trade surplus with respect to services," it said. (ANI)