March Trade Plummets Amid Regional Conflict

Indian exports showed year-on-year growth in the first three weeks of April 2026, offering a positive sign after a difficult March. Merchandise exports fell 7.4% to $38.92 billion in March. Trade with West Asia was particularly affected, dropping over 50% due to regional conflict. This disruption forced longer, more expensive shipping routes, increasing freight charges and insurance costs.

The overall merchandise exports declined by 7.44% to $38.92 billion in March compared to the previous year. The most significant impact was felt in trade with the West Asia region, which saw exports plunge by 57.95% and imports by 51.64% in March. This contraction is directly attributable to disruptions around the Strait of Hormuz, forcing exporters to reroute shipments via longer, costlier passages such as the Cape of Good Hope. These longer routes add an estimated 12-15 days to transit times and substantially increase freight charges. War risk insurance premiums have escalated, and emergency surcharges of up to $4,000 per container are being levied, significantly eroding exporter margins.

Global Trade Trends and India's Agreements

While India's overall export performance reached a record $860 billion in FY 2025-26, a 4.22% increase year-on-year, March's figures highlighted specific vulnerabilities. In contrast to India's merchandise trade performance, Thailand's exports grew robustly by 18.7% in March 2026, driven by industrial shipments. China also reported a surge in chemical exports during March, partly fueled by strong Indian demand, showing different regional responses to supply chain disruptions. India continues to rely on Western markets, even with tariffs. Progress on the India-US Bilateral Trade Agreement (BTA) is advancing, with its first tranche largely finalized. Discussions are focused on securing preferential market access for Indian goods, a move expected to boost labor-intensive and agri-based sectors. Foreign Direct Investment (FDI) for FY 2025-26 is projected to exceed $90 billion, signaling sustained investor confidence.

Economic Pressures Mount

The Finance Ministry noted increasing risks from the Middle East conflict, which has disrupted supplies of energy, fertilizers, and raw materials. This is raising costs and weakening trade. Wholesale inflation accelerated to 3.88% in March, a direct consequence of rising energy and commodity prices. If energy shocks persist, the trade deficit, which narrowed to $2.44 billion in March, could widen significantly. Analysts, including those at HSBC, caution that a wider trade deficit may be delayed rather than avoided, especially if energy prices remain high.

Challenges and Outlook for Exporters

While the early April export figures offer optimism, March revealed significant challenges. The over 50% drop in trade with key West Asian markets, which bought $11.8 billion in Indian agri-exports in 2025, shows a major vulnerability for India's export sector. Rerouting cargo around the Strait of Hormuz is a costly necessity that directly impacts export competitiveness and profitability. Perishable goods exporters face higher risks, including potential rejected shipments and lower prices. Although services exports remain strong, merchandise trade growth is slow, pointing to ongoing pressure on goods exports due to shifting global demand and volatile commodity prices. India is pursuing new trade agreements, with 12 FTAs under negotiation and the India-US BTA's first tranche finalized. These deals aim to provide better market access and boost India's export competitiveness. However, the ongoing conflict in West Asia poses continuous risks to India's trade outlook, potentially affecting inflation, widening deficits, and slowing economic growth if disruptions continue. The main challenge for Indian exporters will be managing these higher costs and geopolitical uncertainties while taking advantage of new trade opportunities.