India’s trade deficit narrowed more than expected in February, mainly due to a decline in imports, offering a brief positive signal for the country’s external balance. However, economists caution that the improvement came before the escalating conflict involving Iran in West Asia began to affect global trade and energy supply routes.
According to data released by the Ministry of Commerce and Industry, India’s merchandise trade deficit stood at $27.1 billion in February, significantly lower than the revised $34.68 billion recorded in January 2026. The figure also came below the $28.8 billion deficit predicted by economists in a Reuters survey.
Imports Decline Drives Improvement
The narrowing trade gap was largely driven by a fall in imports. India’s total imports dropped to $63.71 billion in February, compared to $71.24 billion in January, marking an almost 11 percent decline on a monthly basis.
While demand for electronics, machinery, and other industrial inputs remained strong, the drop in overall import value suggests that the intense pace of commodity buying earlier in the year has begun to cool.
Exports Show Limited Growth
India’s exports remained mostly stable during the month. Outbound shipments were valued at $36.61 billion in February, slightly higher than $36.56 billion in January.
However, on a year-on-year basis, exports were marginally lower than the $36.91 billion recorded in February 2025, indicating that global demand for Indian products remains relatively subdued.
Rising Geopolitical Risks
Despite the encouraging trade numbers, analysts believe the improvement may be temporary. The escalating conflict in West Asia and the disruption of shipping through the Strait of Hormuz could soon place pressure on India’s trade balance.
India relies heavily on the region for its energy needs. The country imports over 80 percent of its crude oil and around 60 percent of its liquefied petroleum gas (LPG), with a large portion of these shipments passing through the Hormuz route.
As tensions intensify in the region, exporters and traders have already started reporting higher freight charges and increased insurance costs, both of which could affect India’s import bill and trade flows in the coming months.
Shipping and Agricultural Trade Impact
The geopolitical tensions are not only affecting energy supplies but also disrupting other trade routes. Agricultural shipments, including rice exports to markets such as Iran, Iraq, and Saudi Arabia, are facing logistical delays due to increased shipping risks in the region.
These disruptions could potentially affect both export volumes and transportation costs for Indian exporters.
Strong Services Exports Provide Support
India’s services sector, however, continues to show strong performance. Services exports reached $39.53 billion in February, a significant increase compared to $31.65 billion in the same month last year.
When services trade is combined with merchandise trade, India’s overall trade deficit narrowed to $3.96 billion in February, offering some relief to the country’s current account balance.
Fiscal Year Outlook
Despite the February improvement, the broader trend still shows pressure on India’s external trade position. For the first 11 months of the current fiscal year (April–February), the overall trade deficit widened to $109.64 billion, compared to $91.11 billion during the same period last year.
Economists warn that the coming months will be critical for India’s economy. Rising shipping disruptions, volatile commodity prices, and geopolitical tensions in the Middle East could quickly reverse the temporary improvement seen in February’s trade data.
Originally published on 24×7-news.com.
