Indian merchandise trade deficit narrowed sharply to $20.67 billion in March 2026, significantly below market expectations, as higher exports and lower imports improved the country’s trade balance despite rising geopolitical tensions in West Asia.

Economists had projected a deficit of $32.75 billion for the month, compared to $27.1 billion recorded in February, making the latest data a positive surprise for markets.

Key Highlights

• Indian trade deficit narrows to $20.67 billion in March, beating market expectations significantly.
• Higher exports and lower imports drive improvement despite ongoing geopolitical tensions in West Asia.

Exports Rise, Imports Decline

The improvement in India’s trade balance was driven by a combination of rising exports and easing imports. Merchandise exports increased to $38.92 billion in March from $36.61 billion in February, while imports declined to $59.9 billion from $63.71 billion, according to official data.

This trend reflects strengthening global demand for Indian goods alongside moderating import pressures, particularly in key sectors.

Geopolitical Risks Still Loom

Despite the sharp narrowing of the trade deficit, concerns remain over ongoing tensions in West Asia, particularly involving Iran. Disruptions to maritime trade routes and energy supply chains could pose risks to both exports and imports in the coming months.

India remains more vulnerable to such disruptions compared to export-driven economies like Japan, South Korea, and Taiwan, due to its heavy reliance on Gulf shipping routes.

Also Read: India Plans Rs 2.5 L Cr Credit Guarantee Scheme Amid West Asia Crisis

Services Exports Continue to Drive Growth

India’s overall exports of goods and services are estimated to have grown 4.22% year-on-year to around $860 billion in FY26, highlighting resilience in external trade.

Services exports remain a key growth driver, reaching $418.31 billion during the fiscal year, supported by strong performance in IT, financial services, and business services sectors.

In comparison, merchandise exports recorded modest growth of 1% to $441.78 billion, indicating relatively slower expansion in goods trade.