What Happened
- India's merchandise exports contracted marginally in February 2026 — falling approximately 0.8% year-on-year to $36.61 billion — the first monthly contraction in four months, with the trade deficit widening to approximately $27.1 billion.
- The Commerce Secretary warned that March would see a more pronounced "southward" trend due to escalating logistical disruptions from the West Asia conflict blocking freight movements through the Strait of Hormuz.
- Despite the February setback, combined goods and services exports for April–February stood at $790.86 billion, up 5.8% year-on-year, and officials stated they expected to remain in positive territory versus the prior year.
- The March 2026 outcome validated the warning: merchandise exports fell 7.44% year-on-year to $38.92 billion — a five-month low — with exports to West Asia plunging approximately 58% as the full weight of Gulf route disruptions was captured in official data for the first time.
- Approximately $3.5 billion in monthly export revenue was erased by the West Asia routing disruption alone; China overtook the US as India's top trade partner in FY26 during this period.
Static Topic Bridges
India's Foreign Trade Policy 2023 — Framework and Export Targets
India's Foreign Trade Policy (FTP) 2023, notified by the DGFT under the Ministry of Commerce and Industry, is designed to be a dynamic, open-ended policy (no fixed end date) — a departure from the earlier five-year fixed-term policies. The FTP 2023 targets $2 trillion in total exports (goods + services) by 2030, with an intermediate target of $1 trillion in merchandise exports. The policy shifted from an incentive-based approach (MEIS/SEIS duty credit scrips) toward remission and entitlement-based schemes (RoDTEP — Remission of Duties and Taxes on Exported Products; and RoSCTL for textile exports).
- RoDTEP (notified August 2021, continued under FTP 2023): remits embedded central and state taxes in the export supply chain that are not otherwise refunded under GST/drawback — covering electricity duty, mandi tax, petroleum products tax, etc.
- The Advance Authorization Scheme and EPCG (Export Promotion Capital Goods) scheme continue under FTP 2023 for import duty exemptions against export obligations.
- DGCIS (Directorate General of Commercial Intelligence and Statistics) compiles India's monthly merchandise trade data, which the Ministry of Commerce publishes.
Connection to this news: The FTP 2023's $2 trillion by 2030 target assumes sustained double-digit growth in goods exports; the West Asia-induced reversal in February–March 2026 highlights how geopolitical shocks can derail trade trajectories independent of domestic policy.
India's Merchandise Export Composition
India's merchandise exports are structurally diversified across engineering goods (~25–26% of total), petroleum products (~17–18%), gems and jewellery (~9–10%), chemicals (~9%), textiles and apparel (~8%), and agricultural commodities (~6–7%). Engineering goods, petroleum products, and chemicals have significant exposure to West Asian markets — both as destinations and through trans-shipment routes. West Asian markets (UAE, Saudi Arabia, Oman, Kuwait, Bahrain, Qatar, Iran, Iraq, Yemen) collectively account for a significant portion of India's goods exports.
- India's total merchandise exports in FY 2024–25: approximately $437–440 billion.
- Petroleum product exports are particularly sensitive to Gulf logistics: India re-exports refined products (Reliance Industries, Nayara Energy) to global markets, including through Gulf port transit.
- West Asia as a collective export destination historically accounts for approximately 12–15% of India's total merchandise exports.
Connection to this news: The 58% collapse in West Asia exports in March 2026 represents the steepest sectoral directional shock India's export data has recorded in recent years, affecting engineering goods, refined petroleum, and agricultural exports simultaneously.
Trade Balance, Current Account, and External Sector Stability
India's merchandise trade balance is structurally in deficit (imports exceed exports), typically in the range of $250–280 billion annually. This deficit is partially offset by the services trade surplus (IT/BPO, financial services, tourism) and remittances. The net result is the Current Account Deficit (CAD), which the RBI monitors closely as a percentage of GDP — a CAD above 3% of GDP is considered a stress threshold. A widening trade deficit due to export compression (rather than import surge) has different macroeconomic implications: it reduces export-linked employment and forex earnings without the demand-support from import consumption.
- India's CAD in FY 2024–25: approximately 1.0–1.2% of GDP — manageable.
- Services exports (primarily IT/software) have been the stabilising force in the current account, growing consistently.
- A sustained export compression of $3–4 billion per month over several months could push the CAD above 2% of GDP, reducing RBI's FX management flexibility.
Connection to this news: The Commerce Secretary's warning about March exports is essentially a signal to policymakers — RBI, Finance Ministry, and DGFT — that the external sector is under near-term stress and may require policy responses (export credit guarantees, freight support, trade finance measures) to prevent a cascade into the current account.
Key Facts & Data
- February 2026 merchandise exports: approximately $36.61 billion (−0.8% y/y)
- February 2026 trade deficit: approximately $27.1 billion
- April–February goods + services exports: $790.86 billion (+5.8% y/y)
- March 2026 merchandise exports: $38.92 billion (−7.44% y/y)
- West Asia exports decline in March: approximately −58%
- Estimated export revenue lost to West Asia route disruption in March: approximately $3.5 billion
- FTP 2023 target: $2 trillion total exports by 2030
- India's merchandise export composition: engineering goods ~25–26%, petroleum ~17–18%, gems & jewellery ~9–10%, chemicals ~9%