India's economy faces a double bind today. On one side, the current account deficit (CAD) is widening, touching $23.3 billion in late 2023, driven by a relentless import bill crude oil, electronics, gold, and fertilisers being the usual culprits. On the other side, US tariffs on Indian goods add an external squeeze, limiting export competitiveness in sectors like steel, textiles, and certain chemicals. Put together, this creates a structural pressure: Our import-heavy economy struggles to balance its books.
India has a unique advantage few economies possess. While goods trade runs a persistent deficit, services trade gives India a massive cushion. In FY23, India's services surplus hit around $150 billion, largely powered by IT, software, and professional services. If India can strategically expand this surplus using AI and next-generation software solutions, it can counterbalance CAD pressures even in a tariff-heavy world.
The question then becomes: how do we translate AI and software innovation into a deliberate CAD reduction strategy?
India's CAD is not an abstract number, it's a product of specific flows. Nearly 30% of the deficit comes from oil imports, another 20-25 percent from electronics (semiconductors, GPUs, mobile components), and 7-10% from gold. On the export side, India is constrained by tariffs in the US and rising competition from low-cost Asian exporters. This leaves services as the safety valve.
This is where AI can shift the equation. Unlike oil or gold, services are weightless, tariff-proof, and infinitely scalable. Every software application exported, every AI platform licensed globally, directly reduces CAD by bringing in foreign exchange without equivalent import costs.
And here's India's underappreciated edge--the sheer number of software developers. With nearly five million coders, soon the largest pool outside the US; India is uniquely positioned not just to build AI models, but to create applications on top of them. Applications are what generate revenue: fraud-detection tools for banks, language-support systems in hospitals, video analytics for cities, logistics platforms for trade. That's where the money lies, and India has the manpower to produce it at scale.
Take health care as one example. India already attracts patients from the Middle East and Africa because of cost-effective, high-quality treatment. Now, layer AI on top: language-support systems that let a patient from Cairo or Riyadh consult seamlessly with an Indian doctor; AI-driven diagnostics and telemedicine tools exported as SaaS platforms; video-analytics solutions for hospital safety and patient monitoring. Suddenly, India isn't just a medical tourism hub it becomes a global exporter of AI-powered health care solutions, creating new revenue streams far beyond physical hospital visits.
Or consider security and infrastructure. Video analytics platforms, already tested in India for crime detection and crowd management, can be productized for global cities. Whether it's monitoring metros in Europe, retail chains in Africa, or stadiums in Latin America, these solutions tap into markets where India has credibility but hasn't yet scaled exports. Again, no container ships, no tariffs, just pure software widening the services surplus.
The common pushback is that AI itself is resource-hungry. GPUs are expensive, and India imports billions worth of them, potentially adding to the import bill. That's a valid concern, but the balance is in our favour. Every $5-10 billion spent on hardware can unlock $25-30 billion in export potential through AI-enabled services. In other words, the foreign exchange earned through AI applications can more than pay for the chips powering them.
What this really means is India doesn't need to beat China in manufacturing scale, nor can it out-subsidise the US on semiconductors. But it can out-innovate in services. From AI-powered logistics for Africa, fintech for Southeast Asia, edtech platforms for Latin America, to health and security solutions across the Middle East, India can turn its software edge into a CAD shield.
The strategy is simple: let physical goods imports be offset by digital services exports. That's the fastest, most realistic path to balancing our current account in a world where tariffs will only rise.
India's policymakers often focus on diversifying energy or boosting local electronics assembly. Those are necessary but slow levers. The sharper lever is to double down on AI and software services not just for the US, but for the world. By doing so, India doesn't just protect itself from CAD pressures; it positions itself as the brain, not the factory, of the global economy.