India’s merchandise trade deficit narrowed sharply to $20.98 billion in March, coming in well below market expectations, even as escalating tensions in West Asia pose fresh risks to exports and import costs.

The deficit was lower than economists’ estimate of $32.75 billion in a Reuters poll and also improved from $27.1 billion in February, according to government data.

Exports rise, imports decline

The narrowing deficit was driven by a combination of higher exports and softer imports.

Merchandise exports rose to $38.92 billion in March, up from $36.61 billion in February, while imports declined to $59.9 billion from $63.71 billion over the same period.

West Asia tensions cast shadow

The improvement in March comes against a backdrop of rising geopolitical uncertainty.

The United States said it had halted maritime trade linked to Iran, even as US President Donald Trump indicated that talks with Tehran to end the conflict could resume.

The conflict has also disrupted activity around the Strait of Hormuz, a key global route for crude and gas shipments, raising concerns over energy supply and trade flows.

India more exposed to shipping disruptions

India remains particularly vulnerable to disruptions in Gulf shipping routes.

Unlike export-driven economies such as Japan, South Korea and Taiwan, India relies heavily on these routes for both exports and energy imports, making it more exposed to rising freight and insurance costs.

On a broader basis, India’s total exports of goods and services are estimated to have risen 4.22% year-on-year to about $860 billion in FY26, according to Commerce Secretary Rajesh Agrawal.

Services exports continued to drive growth, reaching $418.31 billion, reflecting strong performance in IT, business and financial services. In comparison, merchandise exports grew at a slower pace of about 1% to $441.78 billion, highlighting the divergence between goods and services trade.