India’s merchandise trade deficit eased to USD 27.1 bn in Feb-26 from USD 34.7 bn in Jan-26, driven by a sequential fall in imports even as exports held steady
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India’s merchandise trade deficit eased to USD 27.1 bn in Feb-26 from USD 34.7 bn in Jan-26, driven by a sequential fall in imports (esp. precious metals) even as exports held steady. The disruptive gyrations on the trade front have strengthened in 2026. After encouraging developments on bilateral trade deals with the EU and the US, the tariff structure has once again become uncertain. With the US Supreme Court abrogating the erstwhile differential rate of reciprocal tariffs, the Trump administration is geared towards mounting a similar structure that is legally tenable, while opening up trade investigations against 16 countries (including India and China) over subsidized excess capacity harming US manufacturing. It is encouraging to note that India’s merchandise trade has been somewhat resilient despite these uncertainties. However, the fresh crisis in the Middle East poses a serious risk. Given India’s limited trade integration with Iran and Israel (both cumulatively have a share of 0.4% in India’s total merchandise trade), it will avoid any major direct macro fallout from the ongoing war. However, Iran’s control of the Strait of Hormuz, a key maritime chokepoint, has sent crude oil and gas prices to their highest levels since the start of the Russia-Ukraine war in 2022. With no immediate resolution in sight, there could be a significant upside to our FY27 current account deficit forecast of 1.2% of GDP. If oil price averages USD 100 pb levels in FY27, up from USD ~70 pb in FY26, then India’s CAD could touch 2.2% of GDP, double the estimated level of 1.1% in FY26