Although the medical tourism is a recent phenomenon, this sector grows exponentially and emerges as a major force for the growth of services exports worldwide. India is one of the major players in this industry. Soaring medical costs, high insurance premiums, increasing number of uninsured and under insured people in developed nations, long waiting period in the home country, availability of high quality health care services at affordable rate, and internet/communication channels in developing countries, cheaper air fares, and tourism aspects are the driving forces of the outbound medical tourism. Currently India hosts about 1.27 million medical tourists from industrialized countries like UK and USA and from its neighboring countries such as Bangladesh, Sri Lanka, and China. Its foreign exchange earning from medical tourism is around US $ 1.8 billion. But it faces intense regional competitions from Malaysia, Singapore and Thailand. Against this backdrop, this study attempts to analyze (i) the trends in foreign tourist arrivals in India and foreign exchange earnings from them, (ii) the factors favoring the growth of medical tourism in India, including the initiatives of government and industry (iii) the opportunities available for India to make further progress and (vi) the challenges facing the industry. Since the data on the exact number of medical tourist arrivals and revenues are not readily available, this study attempts to estimate the number of medical tourists and earnings from them till 2015. The projection indicates that the number of medical tourist in India is likely to reach 2.8 million and the market will be around US $ 4 billion by 2015. Further, it demonstrates a simple Ricardian model of trade for healthcare industries in two model countries (India and South Korea) and shows how they can gain from trade.