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India needs to diversify import sources while strengthening domestic manufacturing.
In brief
- India’s imports reached US$0.99 trillion in FY26, placing the country close to the US$1 trillion benchmark.
- Nearly half of India’s merchandise imports are concentrated in four commodity groups - petroleum products, electronic goods, gold and machinery.
- Six countries accounted for 46% of India’s merchandise imports in FY26, highlighting the importance of source diversification alongside targeted import substitution.
Imports of goods and services: Reaching the US$1 trillion-benchmark
Against the backdrop of heightened geopolitical uncertainty and supply-chain disruptions, India's imports covering both goods and services reached US$0.99 trillion in FY26 (Chart 1), close to the US$1 trillion benchmark. Merchandise imports continue to account for the bulk of total imports, although their share has moderated over time from about 89% in FY01 to 82.4% in FY26. Correspondingly, the share of services imports increased from slightly above 11% to 17.6% over the same period. Despite this gradual shift, India's import profile remains predominantly merchandise-oriented.
Imports as a share of GDP increased from about 10.1% in the early 1990s to a peak of nearly 33% in FY12 and FY13, before stabilizing at close to 25% of GDP (2022-23 spliced series) FY24 onwards (Chart 2). Although the value of imports has expanded substantially over time, the import to GDP ratio has moderated from its historical peak, indicating a relative reduction in import dependence. At the same time, the trade surplus generated by services continues to mitigate India’s merchandise trade deficit.
Concentration of imported commodities and services
India's merchandise imports continue to exhibit a significant degree of commodity concentration. Petroleum crude and products remain the single largest import category (Table 1). Its share, which peaked at about 31% in FY15 due to higher crude prices and import volumes, declined to 27.5% in FY20. It rose again to 29.2% in FY23 as crude oil prices surged to US$92.7/bbl. following the Russia-Ukraine conflict and subsequently moderated to 22.4% in FY26. The decline in recent years reflects both softer crude prices and the rising importance of non-crude imports.
Among India’s non-oil imports, the share of electronic goods recorded the sharpest increase, rising from 5.6% in FY01 to 15.0% in FY26, while that of machinery imports increased marginally. Gold imports continued to account for an average of about 8% over this period. Together, petroleum products, electronic goods, gold and machinery accounted for nearly 55% of merchandise imports in FY26, highlighting the continued concentration of India's merchandise import basket despite some import diversification across other categories such as transport equipment, non-ferrous metals, chemicals and coal.
Services imports also exhibit a degree of concentration with four categories namely, other business services (34.0%), travel (17.5%), transport (16.4%) and telecommunications and IT-related services (13.3%), accounting for a dominant share of the services import basket in FY26. Over time, the share of telecommunications and IT-related services has increased significantly, while dependence on imported financial services has declined.
Concentration of sources of merchandise imports
Six key countries from which India’s merchandise imports are sourced include China, UAE, Russia, the US, Saudi Arabia and Iraq. Dependence on China has increased over time from 3.0% in FY01 to 17.0% in FY26, an increase of 14.0% points (Table 2). It is India’s non-oil imports that come mainly from China while oil imports are sourced from UAE, Russia, Saudi Arabia and Iraq. Imports from the US comprise both oil and non-oil products.
The commodity composition of imports from China indicates the importance of electronic goods, followed by machinery, chemicals, artificial resins, plastic materials, transport equipment, non-ferrous metals, and iron and steel. In comparison, the UAE is one of the main sources for imported crude and petroleum products followed by gold and pearls and precious/semi-precious stones. Russia overwhelmingly serves as a source of crude oil imports for India.
Diversification of import sources and strategies for India’s import substitution
India's import profile exhibits contrasting patterns of concentration. Petroleum crude and petroleum products accounted for 22.4% of merchandise imports in FY26, indicating continued commodity concentration. However, the sources of oil imports have become progressively diversified across countries such as the UAE, Russia, Saudi Arabia, the US and Iraq. In contrast, non-oil imports, which accounted for 77.6% of merchandise imports in FY26, remain heavily concentrated in China, particularly in electronics, machinery and industrial inputs. This highlights the need for both source diversification and a targeted import substitution strategy.
Recognizing these vulnerabilities, the GoI has adopted a renewed import substitution strategy under the Aatmanirbhar Bharat framework. At the July 2026 Board of Trade meeting1, import substitution was identified as a key priority to reduce import dependence, conserve foreign exchange, strengthen domestic supply chains and mitigate vulnerabilities arising from excessive reliance on foreign suppliers. The GoI has also emphasized that import substitution and export promotion are complementary strategies for enhancing India's industrial competitiveness.
According to available information2, the GoI has prepared a joint strategy with state governments to substitute imports worth approximately US$189 billion through domestic manufacturing of 1,272 products across sectors such as electronics, machinery, chemicals and specialty steel. About 26% of India's FY26 import basket has been assessed as amenable to import substitution. The strategy emphasizes product-level interventions, supported by sector-specific manufacturing clusters, streamlined approvals and fiscal incentives.
Many of India's high-growth export sectors continue to depend on imported components and industrial inputs. A distinction may, therefore, be made between resource-based imports such as crude oil and gold, where domestic constraints limit substitution possibilities, and manufacturing-related imports such as electronics, machinery, chemicals and specialized industrial inputs, where domestic production can be expanded. Reducing dependence on electronic components, APIs for pharmaceuticals, critical minerals and advanced manufacturing inputs through greater investment, R&D and domestic value addition should remain a policy priority. Given China's dominant role in India's non-oil imports, India may also promote bilateral trade in local currencies, at least partially.
Recent initiatives undertaken by India in the context of import substitution also include India Semiconductor Mission (ISM), Semicon 2.03, Electronics Components Manufacturing Scheme (ECMS) and Mobile Phone PLI4, Samudra Manthan (National Offshore Exploration Scheme)5 and National Investment Policy for Urea-2026 (NIPU-2026) for Aatmanirbhar Bharat6.
Although the trade imbalance in goods and services combined peaked at more than 7% of GDP in FY13, it has since moderated to less than 3% of GDP. Continued services trade surplus and benign crude oil prices could help India move closer to a position of balance on its trade account.
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Summary
Recent geopolitical conflicts and disruptions to strategic trade routes have highlighted the risks associated with import dependence, particularly for energy-importing economies like India. Strengthening supply-chain resilience through a combination of import substitution, export promotion and greater domestic value addition has therefore assumed increasing importance in advancing India's Viksit Bharat aspirations.
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