India’s merchandise trade deficit eased to USD 20.7 bn in Mar-26 from USD 27.1 bn in Feb-26, driven by a sequential fall in imports (esp. precious metals and petroleum products), while exports faced a contraction. For the full year, the cumulative merchandise trade clocked a record high of USD 1.2 tn, while the deficit stood at its widest level of USD 333 bn. Despite a challenging trade environment marked by heightened uncertainty on US tariffs, India’s exports posted a modest expansion, helped by diversification and penetration strategies. However, the trade environment has worsened on account of the Middle East crisis, running for 7 weeks now. India’s imports from UAE, Saudi Arabia, Iraq, and Qatar registered annualized contraction in the range of 37-66% in Mar-26.  Disruptions to global supply chains and the broader economy could potentially worsen amidst extreme uncertainty on both the availability as well as the price of crude oil, gas, and fertilizers. On the other hand, a diplomatic resolution, for which efforts are underway, would limit the economic damage, with global trade getting back to its pre-war momentum after a brief period of adjustment. Over the medium-term, the recently concluded FTAs with UK, Oman, New Zealand, and the EU, along with the likelihood of finalization of the India-US trade deal, would enhance the scope for India’s export market. For now, assuming an average Brent price of USD 85 pb, we project India’s current account deficit at 1.8% of GDP. The forecasts remain highly dependent upon the intensity and longevity of the ongoing Middle East crisis.