India’s March 2026 trade deficit came in lower than expected, but Yes Securities has cautioned that underlying factors point to a likely widening in the coming months, driven by external shocks, slowing global demand, and structural pressures on the import bill.

The report noted that “India’s March trade deficit surprised at only $21 billion,” aided by a temporary compression in imports and a sequential recovery in exports. However, it emphasised that this improvement may not be sustained.

A major reason for the smaller deficit was a sharp drop in imports, especially gold and oil. Gold imports fell to about $3.1 billion, and oil imports declined to around $12.2 billion. However, this decrease was not entirely due to lower demand. The report suggests that the fall may have been caused by the closure of the Strait of Hormuz, which disrupted supply, pointing to supply issues rather than a long-term improvement.

“The drop… may be attributed to the closure of the Strait of Hormuz which disrupted supply,” the report noted, indicating supply-side constraints rather than structural correction.

The report warned that such disruptions could reverse as supply normalises, pushing the import bill higher again. Even with recent easing in crude prices following ceasefire developments, “the physical restoration of damaged infrastructure and full normalisation of logistics will be a slower process,” the report noted, suggesting persistent volatility in oil markets.

On the exports side, the outlook remains fragile. Despite a month-on-month pickup, exports contracted by 7.3 per cent year-on-year in March, reflecting weak global demand conditions. The report flagged that in FY27 global demand is expected to slow, which could further weigh on export growth.

Additionally, the composition of imports signals weakening domestic momentum but also future risks. Imports for industrial inputs have dropped, indicating expectations of a softer production cycle, the report observed. While this has temporarily reduced import demand, a revival in domestic activity could again lift imports without a commensurate rise in exports.

Another concern highlighted is the external income channel. The report pointed to a probable drop in remittances from Gulf economies, which could weaken the current account position further.

Even as services continue to provide a buffer with “net services balance… at $18.2 billion” — the cushion may not be sufficient to offset pressures from merchandise trade.

Given these dynamics, Yes Securities expects a deterioration in the external balance. “We expect CAD to widen to $70.1 billion (1.6 per cent of GDP) in FY27,” the report said, with risks tilted to the upside if oil prices remain elevated. It further warned that CAD could rise to 1.6-2.0 per cent of GDP “if oil prices average $85-95/bbl.”

In sum, the report suggests that March’s lower trade deficit is likely transitory, with a combination of recovering imports, weak exports, and global uncertainties setting the stage for a wider deficit in FY27.

Published on April 16, 2026