Trade deficit led by electronics import, digital service outflow weakening rupee: BDIA President

The new dominant driver of the rupees structural weakness is the digital drain, he said.The rupee fell to near 97 levels against the US dollar before closing at a record low of 96.86 to US dollar on Wednesday.Speaking on the sidelines of the BDIA event, Somany said Indias merchandise trade deficit for FY26 was USD 333 billion.Within this, electronics imports alone are USD 116 billion - growing at 17.8 per cent per year - and have, for the first time in our independent history, displaced petroleum as the fastest-rising line in our import basket.

Surging electronics imports and payments for foreign digital services are widening India's trade deficit alongside crude oil, pushing the rupee to all-time lows, a top official of the industry body for sovereign digital firms, BDIA, said on Wednesday.

Bharat Digital Infrastructure Association (BDIA) President Piyush Somani told reporters that digital drain, a combination of money outflows for electronic imports and purchases of digital services from foreign entities, has become a major driver of structural weakness in the Indian currency.

''The rupee touched Rs 96.64 to the dollar yesterday - an all-time low - and we are continuing to lose ground. The conventional explanation blames crude oil and US interest rates. These are real, but they are no longer the dominant story. The new dominant driver of the rupee's structural weakness is the digital drain,'' he said.

The rupee fell to near 97 levels against the US dollar before closing at a record low of 96.86 to US dollar on Wednesday.

Speaking on the sidelines of the BDIA event, Somany said India's merchandise trade deficit for FY26 was USD 333 billion.

''Within this, electronics imports alone are USD 116 billion - growing at 17.8 per cent per year - and have, for the first time in our independent history, displaced petroleum as the fastest-rising line in our import basket. Add the digital services outflow - cloud, software, advertising, royalties, AI services - of approximately USD 50 billion, and roughly half of India's entire merchandise trade deficit is now digital,'' Somani said.

He said memory prices have been rising, which has driven up the prices of electronic devices, and the Middle East crisis has led to an escalation in the prices of crucial electronic components.

''Silicon is the new oil. Code is the new crude. And until policy responds to this structural reality, every intervention by the RBI is treating a symptom, not the disease,'' Somani said.

The BDIA has recommended a five-pillar measure to the government of India and the Reserve Bank to address the structural causes of rupee weakness.

It has recommended imposing a digital services tax of 6 to 8 per cent on foreign cloud, software, and advertising revenues earned in India, restoring symmetric taxation that the EU, the UK, and most G20 economies already apply.

BDIA has recommended shutting down the Luxembourg-and-Ireland routing loophole through which foreign tech vendors avoid Indian GST and corporate tax via distributor chains.

The industry body has suggested to extend reverse-charge GST to all B2B digital services consumed in India, regardless of contractual structure, establishment of a Digital Permanent Establishment definition that treats Indian users and Indian-located workloads as taxable presence and making sovereign procurement mandatory for government and public-sector digital infrastructure spend wherever Indian providers meet specification.

''Together these measures can recover Rs 75,000 crore to Rs 1.25 lakh crore in annual revenue - and, more importantly, can reduce the forex outflow that is the deepest cause of rupee weakness today,'' Somani said.

BDIA has formally requested the Ministry of Finance and the Ministry of Electronics and IT (Meity) to grant a 20-year corporate tax holiday for sovereign data centres meeting prescribed sovereignty standards, alongside infrastructure status that provides access to long-tenor finance and reduced customs duty on critical equipment.

RSS-affiliate Swadeshi Jagran Manch National Co-Convenor Ashwani Mahajan said that the country's leadership is aligned with all the endeavours of sovereign firms.

He said if a country has to build other infrastructure, improve the lives of the poor and for the development of the country that additional money will come from indigenous firms and not foreign companies.