India’s trade deficit narrowed more than expected in February as a cooling import bill offset stagnant exports, but that was before the Iran war took hold in West Asia—the source of 85% of India’s imports.
The gap between imports and exports shrank to $27.1 billion last month, down from a revised $34.68 billion in January 2026, according to data released by the Ministry of Commerce and Industry on Monday. The figure came in lower than the $28.8 billion trade deficit predicted by economists in a Reuters poll, as the value of inbound shipments fell nearly 11% on a sequential basis.
The data offers a snapshot of the Indian economy just as geopolitical volatility enters a new, more dangerous phase. While the narrowing deficit is a positive for the current account, analysts warned that the stability may be short-lived as the blockade of the Strait of Hormuz begins to seep into trade invoices.
Import Moderation
The improvement in the trade balance was driven primarily by a sharp decline in imports, which fell to $63.71 billion in February from $71.24 billion in January. While the ministry noted continued demand for industrial inputs and electronics, the overall cooling of the import bill suggests a softening in the breakneck pace of commodity stockpiling seen earlier in the year.
Exports remained largely flat, edging up to $36.61 billion from $36.56 billion in the previous month. On a year-on-year basis, they were down slightly from the $36.91 billion recorded in February 2025, suggesting that global demand for Indian goods is struggling to find a higher gear.
The Hormuz Shadow
To be sure, the “goldilocks” trade window may already be closing. New Delhi is closely monitoring the escalating conflict in West Asia, specifically the effective blockade of the Strait of Hormuz.
India imports more than 80% of its crude oil and 60% of its cooking gas, with nearly half of those supplies transiting through the region.
“Exporters have already flagged higher freight rates and insurance premiums as emerging risks,” the ministry noted in its release. The disruptions are not limited to energy. Shipments of agricultural staples like rice, destined for key markets in Iran, Iraq, and Saudi Arabia, are already facing logistical bottlenecks.
Services to the Rescue
India’s services exports stood at $39.53 billion in February, significantly higher than the $31.65 billion recorded a year ago.
When combined with merchandise, India’s overall trade deficit in February was narrowed to a more manageable $3.96 billion. But for the first 11 months of the fiscal year (April–February), the cumulative overall trade deficit has widened to $109.64 billion, compared to $91.11 billion in the same period last year.
Economists suggest that the next few months will be a litmus test for India’s resilience. With transit times to Europe and Africa lengthening and commodity price volatility returning, the “narrowing” seen in February may represent the calm before a geopolitical storm.
