India Trade Deficit Narrows

India’s merchandise trade deficit widened to $27.10 billion in February 2026, nearly doubling from $14.42 billion a year earlier but slightly below market expectations of $28.0 billion. Imports jumped 24% year-on-year to $63.71 billion, driven by purchases of gold and silver, while exports fell 0.8% to $36.61 billion. In late February, the US imposed a temporary 10% tariff on Indian goods alongside standard MFN rates, following a Supreme Court ruling that struck down earlier higher tariffs. The widening deficit also reflects rising freight costs and supply disruptions in West Asia. Exporters in sectors such as apparel and manufacturing have begun adjusting shipment schedules and exploring alternative routes to manage higher logistics costs and longer shipping times. While the latest data does not yet capture the full impact of geopolitical tensions in the Gulf, rising insurance premiums and shipping disruptions are expected to influence trade flows in the coming months.

India’s merchandise trade deficit surged to $34.68 billion in January 2026, up from $23.43 billion a year earlier and well above market expectations of $26 billion. The gap was the largest since October’s record $41.68 billion, coming just weeks before New Delhi struck an interim trade deal with the US aimed at lowering tariffs. Imports jumped 19.2% year-on-year to $71.24 billion, driven largely by higher purchases of gold and silver, while exports rose only 0.6% to $36.56 billion. Earlier this month, US President Donald Trump announced a reduction in tariffs on Indian goods to 18% from 50%, offering relief to exporters and policymakers. Under the agreement, India has committed to reducing Russian oil imports and plans to more than double its annual purchases of US goods. The deal followed a trade pact with the EU, reflecting India’s broader push to strengthen trade ties with major global partners.

India will cut tariffs on European Union car imports to 40% from levels as high as 110%, Reuters reported. Prime Minister Narendra Modi’s government has agreed to immediately lower duties on select vehicles priced above EUR 15,000, with rates set to fall further to 10% over time, easing entry for automakers like Volkswagen, Mercedes-Benz and BMW. The move comes as India and the EU prepare to announce the conclusion of long-running free trade negotiations on Tuesday, with officials calling it “the mother of all deals.” Once finalized and ratified, the agreement is expected to expand bilateral trade and boost Indian exports of goods such as textiles and jewellery, which have faced 50% U.S. tariffs since late August.