NITI Aayog released the 8th edition of Trade Watch Quarterly (TWQ) for the fourth quarter of FY 2025-26, revealing that India’s total merchandise and services trade grew 5.4% year-on-year to reach $1.84 trillion. The report’s thematic focus this quarter is on the pharmaceutical sector, which contributes over 1.7% to India’s GDP and 7.2% to manufacturing GVA, with global pharma demand estimated at $1.3 trillion in 2025. The findings underscore both the resilience of India’s external sector and the strategic importance of pharmaceuticals in the country’s export basket.
What Is the Trade Watch Quarterly?
The Trade Watch Quarterly (TWQ) is a flagship publication of NITI Aayog, India’s premier policy think tank established in 2015 to replace the Planning Commission. The report provides a data-driven analysis of India’s merchandise and services trade performance on a quarterly basis, situating it within the broader global trade landscape.
Each edition of TWQ carries a thematic focus on a specific sector. The Q4 FY26 edition zeroes in on India’s pharmaceutical and Active Pharmaceutical Ingredient (API) trade, following previous editions that examined sectors like electronics, gems and jewellery, and others. The report is released by the Vice-Chairperson of NITI Aayog, currently Ashok Kumar Lahiri, and serves as a policy tool to identify export opportunities, supply chain vulnerabilities, and areas requiring regulatory or strategic intervention.
India’s Trade Performance in FY26: Key Numbers
India’s total trade (merchandise and services combined) reached $1.84 trillion in FY 2025-26, expanding 5.4% over the previous year. Exports grew 4.2% while imports rose 6.5%, reflecting sustained demand for both Indian goods and services abroad and the country’s own consumption needs.
The quarterly breakdown for Q4 (January-March 2026) reveals a mixed picture:
| Metric | Q4 FY26 Value | Change (YoY) |
|---|---|---|
| Merchandise Exports | $112.03 billion | -2.8% |
| Merchandise Imports | $195 billion | +12% |
| Services Exports | $111 billion | +9% |
| Services Imports | $50.7 billion | +4.1% |
| Services Trade Surplus | $60.4 billion | Increased from $47.9 billion in Q1 |
While merchandise exports faced headwinds in the quarter, services exports continued their robust run, helping India maintain a healthy external balance. The services surplus rose steadily from $47.9 billion in Q1 to $60.4 billion in Q4, playing a critical role in offsetting the merchandise trade deficit.
Services Exports: Closing the Gap with Goods
One of the most striking trends highlighted by the report is the narrowing gap between merchandise and services exports. In FY 2025-26, India’s services exports stood at $421 billion, compared to merchandise exports of $442 billion. This is a remarkable shift: services, once a distant second to goods trade, are now almost on par.
India retained its position as the world’s eighth-largest services exporter in 2025. Services exports recorded a CAGR of 10.3% between 2015 and 2025, significantly outpacing the global average. This growth has been driven largely by IT services, business solutions, and professional expertise, which continue to find strong demand in global markets.
The report notes that services exports grew by 8.71% year-on-year in FY26, compared to just 0.93% growth in merchandise exports, underscoring a structural shift in India’s export profile towards a more service-driven economy.
India’s Pharmaceutical Sector: Strengths and Scale
The thematic core of this TWQ edition is India’s pharmaceutical sector, which the report describes as a strategic pillar of the economy. The numbers bear this out. The sector contributes over 1.7% to India’s GDP and 7.2% to the manufacturing Gross Value Added (GVA), while supporting approximately 2.7 million livelihoods.
India’s pharma exports, including pharmaceutical products and APIs, reached $35.8 billion in FY26, making the country a critical supplier in global healthcare supply chains. India is the third-largest producer of pharmaceuticals by volume globally and the 11th largest by value. It accounts for about 20% of the global generic medicines supply and meets 40% of the generic drug demand in the US and 25% in the UK.
India’s Pharmaceutical Position
| Metric | Value |
|---|---|
| Global pharma & API demand (2025) | $1.3 trillion (Pharma: $1.02 tn, API: $261 bn) |
| India’s pharma exports (FY26) | $35.8 billion |
| GDP contribution | Over 1.7% |
| Share of manufacturing GVA | 7.2% |
| Global rank by volume | 3rd |
| Global rank by value | 11th |
| Livelihoods supported | ~2.7 million |
| Global generic medicines share | ~20% |
| Top pharma exporting states | Telangana, Gujarat, Maharashtra |
India’s strength lies in generic formulations and retail medicaments, particularly under HS Code 3004, which accounts for $22.6 billion in exports. The country is also the world’s largest vaccine supplier, providing 60% of global vaccine demand through UNICEF and other agencies. India exports pharmaceutical products to over 200 countries, with more than 50% going to highly regulated markets such as the US and Europe.
Challenges Facing India’s Pharma Sector
Despite these strengths, the Trade Watch Quarterly flags several structural vulnerabilities that could constrain India’s long-term competitiveness in pharmaceuticals.
Heavy Dependence on Chinese Imports
The most significant concern is India’s reliance on China for critical raw materials. The report states that India depends on Chinese imports for 65% of its Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSMs), and intermediates, particularly for fermentation-based products. For some major APIs, this dependence ranges from 66% to 86%. This concentration creates acute supply chain vulnerabilities, especially when geopolitical tensions or disruptions affect trade routes. The recent Middle East crisis, as noted by NITI Aayog Vice-Chairperson Lahiri, underscores the risks of over-reliance on a single source.
Low R&D Investment
Indian pharmaceutical firms invest only about 7% of their sales in research and development, significantly below the international benchmark of 15% to 20%. This low R&D spend limits the sector’s ability to move into high-value, patent-protected segments such as biologics, biosimilars, immunologicals, and advanced therapeutics, where global demand is growing fastest.
Concentrated Export Basket
India’s pharma exports remain heavily concentrated in generic formulations and retail medicaments. While these are areas of proven strength, the country has a limited presence in high-value segments like biologics, biosimilars, vaccines (beyond traditional ones), and advanced therapeutics. The report warns that as global markets shift towards knowledge-intensive biopharmaceuticals, India risks being left behind if it does not diversify its product mix.
Regulatory and Environmental Hurdles
The report also points to weak innovation and commercialization ecosystems, lengthy patent processes, and rising environmental compliance costs that have increased manufacturing and R&D expenses. Stricter environmental requirements, while necessary, have added to the cost burden for domestic drugmakers, particularly small and medium enterprises.
The Way Forward: NITI Aayog’s Recommendations
The report outlines a multi-pronged strategy to address these challenges and position India as a global pharmaceutical innovation hub.
Moving Up the Value Chain
The report urges Indian pharmaceutical companies to shift from a volume-driven to a value-driven approach. This means expanding beyond generic medicines into high-value segments such as biologics, biosimilars, specialty drugs, and advanced therapeutics. NITI Aayog Vice-Chairperson Lahiri noted that if Indian companies develop “good quality, modestly priced branded products, there is no reason they cannot command a high international market.”
Strengthening the API Ecosystem
The report recommends expanding domestic production of APIs, Key Starting Materials, and biotechnology inputs while reducing dependence on Chinese imports through diversified sourcing. Ongoing initiatives such as the Production Linked Incentive (PLI) scheme for bulk drugs, which has already attracted ₹4,763 crore in investments and created 55,000 tonnes of annual manufacturing capacity for 26 critical products, are seen as important building blocks. The expansion of Bulk Drug Parks with common effluent treatment facilities is also recommended.
Dedicated Pharma Chapter in FTAs
A significant policy recommendation is the inclusion of a dedicated pharmaceutical chapter in all future Free Trade Agreements (FTAs) that India negotiates. This chapter would cover regulatory reliance, Good Manufacturing Practice (GMP) inspection cooperation, product registration, and dispute resolution mechanisms. Lahiri mentioned that India and the US are close to finalizing a bilateral trade pact that could include such provisions.
Boosting Innovation and R&D
The report calls for stronger industry-academia collaboration to accelerate technology transfer, patent commercialization, and startup incubation. It recommends developing specialized life sciences clusters to foster research partnerships. The government’s proposed Biopharma SHAKTI initiative, with an outlay of ₹10,000 crore, aims to establish India as a global hub for biologics and biosimilars.
Improving Regulatory Transparency
The report advocates for clearer, faster, and more transparent regulatory approvals for life sciences innovation, including time-bound patent opposition and grant procedures, to enhance intellectual property certainty and attract long-term investment.
Key Takeaways
- The 8th edition of Trade Watch Quarterly, released by NITI Aayog for Q4 FY26, reported India’s total merchandise and services trade at $1.84 trillion, a 5.4% increase year-on-year.
- Services exports grew 9% in Q4 FY26 to $111 billion, while services surplus rose from $47.9 billion (Q1) to $60.4 billion (Q4), helping offset the merchandise trade deficit.
- The global pharmaceutical and API market was estimated at $1.3 trillion in 2025, of which pharmaceuticals accounted for $1.02 trillion and APIs for $261 billion.
- India’s pharmaceutical sector contributes over 1.7% to GDP and 7.2% to manufacturing GVA, supporting about 2.7 million livelihoods.
- India remains 65% dependent on China for critical APIs, Key Starting Materials, and intermediates, exposing supply chains to geopolitical risks.
- Indian pharma firms invest only 7% of sales in R&D, well below the global benchmark of 15% to 20%, limiting movement into high-value segments like biologics and biosimilars.
- NITI Aayog has recommended a dedicated pharmaceutical chapter in future FTAs, greater domestic API manufacturing, and stronger industry-academia collaboration to boost innovation.
