India’s merchandise trade deficit narrowed sharply to USD 20.7 bn in Mar-26, easing to a 9-month low, vis-à-vis USD 27.1 bn in Feb-26. The improvement was primarily driven by a continued sequential contraction in imports, even as exports staged a meaningful sequential recovery. 

Merchandise exports

Merchandise exports rose to its highest level in FY26, clocking USD 38.9 bn in Mar-26 vs. USD 36.6 bn in Feb-26 (+6.3% MoM), although they remained 7.4% lower on a YoY basis.

Out of 14 key sub-categories of exports, only 4 registered an annualized expansion while the remainder declined, including 8 with double-digit drop. 

• The annualized drag was led by Gems & jewellery (-29.4%), Plastic & rubber (-21.7%), Plantation products (-19.1%), Stone, plaster & cement (-17.1%), Textiles (-14.9%) and Agri & allied products (-14.6%).  
• In contrast, the few sub-categories that saw annualized gains were: Miscellaneous goods (+8.5%), Petroleum products (+5.9%), Machinery (+1.1%) and Marine products (+0.8%). 
• Core merchandise exports (i.e., exports excluding Petroleum and Gems & jewellery) edged up to USD 31.7 bn in Mar-26, after remaining broadly flat in the preceding two months at USD 30.5 bn. 

Merchandise imports

Merchandise imports eased to a 9-month low at USD 59.6 bn in Mar-26 compared with USD 63.7 bn in Feb-26 (-6.5% MoM and -6.5% YoY).

Out of 15 key sub-categories of imports, 9 registered annualized contraction. 

• Categories with double-digit decline were led by Petroleum products (-35.9%), Project goods (-23.7%), Gems & jewellery (-17.8%), Transport equipment (-13.7%) and Paper & related products (-10.2%). 
• The drag in imports was partly tempered by annualized gains in Machinery (+20.8%), Electronic items (+19.5%), Ores & minerals (+15.3%), Agri & allied products (+11.4%), Optical, medical & surgical instruments (+6.3%) and Leather manufactures (+1.8%). 
• The decline in merchandise imports was largely driven by a fall in non-core imports, even as core imports rose from Feb-26 levels. 
  1. Core merchandise imports (i.e., imports ex Petroleum and Gems & jewellery) ticked up to USD 41.9 bn, from an 8-month low of USD 40.3 bn in Feb-26. 
  2. Non-Core merchandise imports plunged to a 9-month low of USD 17.7 bn in Mar-26 vis-à-vis USD 23.4 bn in the previous month. 
     • Petroleum imports fell to their lowest level in 13 months to USD 12.2 bn vis-à-vis USD 13.0 bn in Feb-26.
     • Gold imports dropped for the second consecutive month to USD 3.1 bn (vs USD 7.4 bn in Feb-26) while being 31.6% lower on a YoY basis. 
     • Concomitantly, silver imports also moderated for a second straight month, easing to USD 0.6 bn vis-à-vis USD 1.7 bn in Feb-26.

Merchandise trade balance

The improvement in merchandise trade deficit to a 9-month low in Mar-26 was entirely driven by the non-core segment.

• Non-core trade deficit moderated sizably to USD 10.5 bn in Mar-26, from USD 17.3 bn in Feb-26, driven by a correction in gems and jewellery trade deficit which slipped further into low single digits at USD 3.5 bn during the month.
• The correction in gold and silver imports points to a likely slowdown in import volumes, as also a softening momentum in international precious metals prices. Gold, platinum and silver prices contracted by 3.3%, 4.3% and 5.0%, respectively in Mar-26.
• On the other hand, Core trade deficit was lifted to USD 10.2 bn (vs USD 9.8 bn in Feb-26), solely on account of a deficit widening in the Electronics sub-category.

Services trade

Inferences and outlook

Mar-26 trade deficit, largely reflected the following: 

• India’s exports to the US continued to recover for a second consecutive month (+16.5% MoM) in Mar-26 and reached their highest level since Jun-25. Recall, Mar-26 marked the first full month of a reduced 15% reciprocal tariffs imposed by President Trump. 
• On the other hand, exports to Singapore, Malaysia, Spain, China, Italy, Brazil, and Vietnam rose during Mar-26, which more than offset the drag in shipments to UAE, Netherlands, Saudi Arabia, Belgium, Bangladesh, and UK, among others. 
• Notwithstanding a challenging external environment in FY26, India’s overall merchandise trade rose to a record high of USD 1.2 tn, up 5.0% from FY25.
• Domestic demand remained underpinned by favourable policy-led tailwinds, including income-tax and GST-rate cuts, an accommodative monetary policy, along with a benign inflation environment. 
• Exports grew by a modest 0.9%, aided by significant frontloading ahead of six-months of elevated tariff period beginning Sep-25, along with India’s ongoing geographical diversification push. 

Having said, India’s trade outlook remains clouded by near-term headwinds, even as medium-term tailwinds continue to provide support. 

• In its Apr-26 outlook, the IMF projects global GDP growth to moderate by 30 bps to 3.1%, and inflation to rise by 30 bps to 4.4% in CY26. The projected deceleration in global trade (goods and services) volumes to 2.8% in CY26 (vs 5.1% in CY25), amid weaker external demand and war-related disruptions, augurs unfavourably for India’s export outlook.
• The abrogation of President Trump’s IEEPA-based tariffs, has meant that the US-India interim trade deal needs to be reassessed. 
• Nevertheless, the broader outlook remains underpinned by India’s expanding FTA footprint. In particular, the EU and the UK trade agreements envisage tariff elimination on ~90.7% and ~99% of India’s exports to these markets respectively. Together, these geographies account for ~19.7% of India’s exports in FYTD26 (till Jan), comparable to the US. 

On the geopolitical uncertainty front, the six-week US/Irael-Iran conflict appears to have temporarily eased with a ceasefire announced on 8th Apr-26. However, prospects of a durable resolution (following the inconclusive end of the first round of talks) and the underlying energy crisis, remain unresolved.

• The month-long blockade of the Strait of Hormuz exposed India’s acute dependence on key energy imports, with around 50-70% of its crude, LPG and LNG supplies transiting via the critical arterial chokepoint. This drove the price of the Indian Crude Basket (ICB) up by 64.5% MoM in Mar-26 (vs 9.4% in Feb-26) averaging ~USD 113.5 pb. 
• The resultant price shock could bloat India's oil import bill in FY27, which had cumulatively declined by 6.3% in FY26 (vs +3.9% in FY25). 
• Meanwhile, broader input cost pressures have intensified. 
• The IMF Primary Commodities Index rose sharply by 30.5% in Mar-26, driven by broad-based gains across prices of energy transition metals (+33.7%) and industrial metals (+15.9%). 
• This will raise the import bill in the coming months.
• Further, exports to the GCC region which accounted for 13.3% of India’s total exports in FYTD26 (till Jan-26), remain exposed to regional spillovers. Notably, India’s exports to two of its largest Gulf partners - UAE and Saudi Arabia, fell by 62% and 46% respectively in Mar-26. 
• India’s external sector stability is structurally anchored by robust inward remittances, which scaled to USD 135.4 bn in FY25. With the GCC nations accounting for ~38% of these inflows, a protracted West Asian conflict could pose a medium-term risk to this critical BOP buffer.

With the fallout on India’s external sector from the ongoing Middle East crisis largely hinging on the duration of the conflict and the extent of disruption to global energy supplies, emerging risks remain on watch. 

Assuming an average crude oil price of USD 85 pb for FY27, we project India’s current account deficit at 1.8% of GDP. 

Table 1: Highlights of India’s trade balance*

*Note: Numbers may not add up due to rounding off and revision in headline exports and imports

Chart 1: Growth in imports has outpaced that of exports, through most of FY26