India trade deficit $20.98bn in March 2026 as imports fall

What the latest trade print showed

India’s merchandise trade deficit narrowed sharply in March, coming in well below market expectations even as geopolitical risks in West Asia increased pressure on shipping and energy supplies. Government data released on Wednesday showed the deficit at around $11 billion, with multiple reports citing $10.67 billion, $10.76 billion, and $10.98 billion for the month. The February deficit was $17.1 billion, and economists had expected the March gap to widen to $12.75 billion, according to a Reuters poll. The improvement was driven by a combination of higher exports and a sharper drop in imports. But officials and exporters flagged that conditions around the Strait of Hormuz and Gulf shipping lanes were becoming costlier and more uncertain.

Exports up, imports down in March

Merchandise exports rose to $18.92 billion in March, up from $16.61 billion in February. Imports fell to about $19.6-$19.9 billion, versus $13.71 billion in the previous month. The resulting deficit narrowed despite warnings that the Iran war could impede exports to Gulf countries and raise the cost of energy and other imports for India. A separate government release also described the March deficit as $10.76 billion compared with $11.69 billion in March last year. The latest numbers underline two competing forces: disruptions and higher logistics costs linked to the Iran conflict, and a rebound in shipments to the United States that helped cushion some of the stress.

Strait of Hormuz disruption and freight costs

The war prompted Iran to effectively shut the Strait of Hormuz, a key global waterway for crude oil and gas transport. For India, a net energy importer, that matters both for supply security and for import costs. Exporters also pointed to severe delays near the Strait of Hormuz, with one report saying the route has been nearly blocked for about a month and a half. India depends on Gulf shipping routes to move products, unlike Japan, South Korea and Taiwan, and those routes became more expensive as freight and insurance costs spiked. Rising insurance premiums were also cited as a channel through which the conflict weighed on trade activity.

U.S. demand helped cushion the shock

A surge in exports to the United States helped offset weakness linked to the Middle East. Exports to the U.S. rose 17.4% month-on-month to $1.02 billion, supported by a cut in tariffs to 10% following a U.S. Supreme Court ruling. The U.S. had imposed tariffs of up to 50% on a wide swath of goods, and the lower rate boosted shipments of textiles and engineering goods to India’s largest export market. The trade data, as described in the reports, reflects a partial revival in U.S. demand at the same time as supply disruptions and logistics inflation hit Gulf routes.

Middle East trade slumped, officials said

Commerce Secretary Rajesh Agrawal said exports to the Middle East in March dropped by $1.5 billion, which impacted goods exports in the month. Separate reporting said exports to the Middle East slumped over 50% during the same month, and average monthly exports to the region fell from about $1 billion to $1.5 billion. Agrawal also highlighted that imports from the region reduced by 54%. The on-going Iran conflict was described as mounting pressure on trade between India and Middle East countries, impacting a volume of about $1.5 billion.

Commodity import bill: crude and gold eased

On the import side, some key lines softened year-on-year in March. Imports of crude oil and related products fell nearly 36% year-on-year to $12.18 billion. Gold imports declined 31.6% to $1.06 billion. These declines, alongside the month-on-month drop in total imports, contributed to the narrower merchandise trade deficit. But the broader context remained sensitive because India, the world’s No. 3 oil consumer, imports more than 80% of its crude oil needs and 60% of its cooking gas, with the Middle East accounting for a large chunk of supply.

Services trade stayed supportive

Services exports were described as robust through FY26. Services exports were estimated at $118.3 billion for FY26, 7.9% higher than last year. For March, services exports were estimated at $15.20 billion, while services imports stood at $16.96 billion. Reuters calculations based on these estimates put the services surplus at $18.24 billion for the month. The split between goods and services remained important to the overall external balance, with some reporting noting merchandise exports grew at a slower pace of about 1% to $141.78 billion.

FY26 totals: stronger exports, but a wider overall deficit

For the fiscal year ended March, India’s total goods and services exports rose 4.22% to $160.09 billion, while imports grew 6.36% to $178.40 billion. That widened the overall trade deficit (including services) to $119.3 billion from $14.66 billion in the previous year. Separately, the merchandise trade deficit for FY26 was reported at $133.2 billion, with imports at almost $175 billion and exports at $141.8 billion. The data points to a year where services momentum helped lift total exports, but higher imports kept the aggregate deficit elevated.

Key numbers at a glance

Why this matters for markets and policy

The March print suggests the external gap can narrow quickly when imports soften and specific export markets, such as the U.S., improve. At the same time, the Iran war introduced a direct vulnerability for India through the Strait of Hormuz, where disruption can raise freight, insurance, and energy costs. Officials also flagged the scale of trade disruption with the Middle East, which remains a key destination for Indian goods and a major source of energy imports. For investors tracking macro risks, the FY26 totals highlight a stronger export base led by services, but also a larger import bill that kept the overall deficit wider year-on-year.

What to watch next

The U.S. said its military had completely halted trade going in and out of Iran by sea, even as President Donald Trump said talks with Tehran on ending the war could resume this week. Negotiations between the U.S. and Iran were reported to have failed over the weekend, with the possibility of talks resuming. For India’s trade outlook, developments around Gulf shipping lanes, insurance costs, and energy flows will remain central, alongside whether the U.S. demand and tariff environment stays supportive for key export categories.