India's Trade Deficit Widens in Feb 2026 Despite Strong Services Exports

Introduction

India's external trade presented a mixed picture in February 2026, with robust growth in overall exports overshadowed by a sharper surge in imports. According to data released by the commerce ministry, the combined value of merchandise and services exports reached $16.13 billion, an 11.04% increase from the same month last year. However, a significant rise in inbound shipments pushed the overall trade deficit wider, highlighting the contrasting performance between the country's goods and services sectors.

A Closer Look at February's Trade Numbers

The headline figures reveal a complex dynamic. While total exports grew, total imports climbed even faster, rising 21.61% year-on-year to $10.09 billion. This imbalance resulted in an overall trade deficit of $1.96 billion for the month, a notable increase from the $1.72 billion deficit recorded in February 2025. The widening gap underscores the challenges in the merchandise trade segment, which was offset by the continued strength of the services sector.

Merchandise Trade Feels the Pressure

India's merchandise exports experienced a slight contraction in February, dipping 0.81% to $16.61 billion from $16.91 billion a year earlier. In stark contrast, merchandise imports jumped by 24.11% to $13.71 billion, up from $11.33 billion in February 2025. This substantial increase in imports led to a significant widening of the merchandise trade deficit, which stood at $17.1 billion for the month. This figure is considerably higher than the $14.42 billion goods deficit recorded in the same month of the previous year, though it marks a moderation from the $14.68 billion deficit seen in January 2026.

Services Sector Remains a Bright Spot

The services sector continued its strong performance, acting as a crucial buffer for the overall trade balance. Services exports saw impressive growth, rising to $19.53 billion from $11.65 billion in the previous year. Although services imports also increased to $16.38 billion from $14.51 billion, the net result was a healthy services trade surplus of $13.15 billion. This surplus played a vital role in offsetting a large portion of the merchandise trade deficit, keeping the overall trade gap in single digits.

Key Trade Metrics: February 2026 vs. February 2025

Fiscal Year Performance So Far

For the first eleven months of the fiscal year (April 2025–February 2026), India's overall exports are estimated at $190.86 billion, reflecting a growth of approximately 5.8% from $147.58 billion during the same period in the previous fiscal year. Within this, merchandise exports for the April-February period increased by a modest 1.84% to $102.93 billion. On the other hand, merchandise imports for the same period rose by 8.53% to $113.53 billion, indicating strong domestic demand and higher inbound shipments throughout the fiscal year.

Official Commentary and Geopolitical Headwinds

Commenting on the data, Commerce Secretary Rajesh Agrawal noted that the country's exports have remained resilient despite global challenges. "The country's exports are doing well despite challenges," he stated. However, Agrawal also issued a caution for the coming month. He warned that exports in March could face a slowdown due to significant logistical disruptions caused by the escalating crisis in West Asia. The conflict, which reportedly involves military actions by the US and Israel against Iran starting February 28, has begun to impact critical maritime trade routes, including the Strait of Hormuz.

Market Impact and Forward Outlook

The widening trade deficit, driven by surging merchandise imports, could place pressure on the Indian rupee and the country's current account balance if the trend persists. The resilience of the services sector is a key strength, but its ability to consistently offset a large and growing goods deficit will be closely watched. The primary concern for the immediate future is the geopolitical situation in West Asia. Any prolonged disruption to shipping lanes could lead to higher freight costs, delayed shipments, and a potential slowdown in both export and import activities, impacting India's trade performance in the final month of the fiscal year and beyond.

Conclusion

In summary, India's trade data for February 2026 reveals a dual narrative: a thriving services sector generating a substantial surplus and a struggling merchandise segment with a widening deficit. While overall exports show growth, the sharp rise in imports is a point of concern. The outlook is further complicated by emerging geopolitical tensions in West Asia, which pose a direct threat to global supply chains and could dampen India's trade momentum in the near term.