India’s trade deficit narrowed more than expected in February as a softening import bill offset flat exports, but that was before the war with Iran in West Asia – the source of 85% of India’s imports – took hold.
The gap between imports and exports narrowed to $27.1 billion last month from a revised $34.68 billion in January 2026, according to data released by the Ministry of Commerce and Industry on Monday. The figure is lower than the $28.8 billion trade deficit estimated 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 as geopolitical instability enters a new, more dangerous phase. While the narrowing of the deficit is positive for the current account, analysts warn that stability could be short-lived as the blockade of the Strait of Hormuz begins to weigh on trade bills.
import moderation
The improvement in trade balance was mainly due to a sharp decline in imports, which fell from $71.24 billion in January to $63.71 billion in February. While the ministry has noted sustained demand for industrial inputs and electronics, the overall cooling of the import bill suggests a moderation in the alarming pace of commodity stockpiling seen at the beginning of the year.
Exports remained largely stable, rising to $36.61 billion from $36.56 billion in the previous month. On a year-on-year basis, they were slightly lower than the $36.91 billion recorded in February 2025, suggesting that global demand for Indian goods is struggling to get into higher gear.
Hormuz Shadow
Surely, the “Goldilocks” trading window may already be closing. New Delhi is closely monitoring the escalating conflict in West Asia, especially the effective blockade of the Strait of Hormuz.
India imports more than 80% of its crude oil and 60% of its cooking gas, with about half of its supplies passing through the region.
“Exporters have already identified high freight rates and insurance premiums as emerging risks,” the ministry said in its release. Disruptions are not limited to energy. Shipments of agricultural products such as rice destined for key markets in Iran, Iraq and Saudi Arabia are already facing logistics bottlenecks.
rescue services
India’s services exports stood at $39.53 billion in February, which is much higher than the $31.65 billion recorded a year ago.
When combined with goods, India’s overall trade deficit narrowed to a more manageable $3.96 billion in February. 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 increasing in Europe and Africa and commodity price volatility returning, the “contraction” seen in February may represent the calm before a geopolitical storm.
