India’s fragile export recovery has suffered a fresh setback as the war in the Middle East and the continued disruption around the Strait of Hormuz sharply weakened merchandise shipments in March, compounding an already difficult year marked by U.S. tariff pressures and soft global demand.
Fresh trade data from India’s commerce ministry show that goods exports fell 7.44% year on year to $38.92 billion in March, down from $42.1 billion in the same period last year, marking the steepest monthly decline in five months. The latest figures underscore how geopolitical shocks are now colliding with structural trade pressures to weigh on one of the world’s fastest-growing major economies.
The hit was especially severe across India’s Gulf-linked trade corridor. Exports to the Middle East region plunged by nearly 58%, with Commerce Secretary Rajesh Agrawal saying the country lost about $3.5 billion in outbound shipments in March alone as the conflict disrupted shipping routes and raised insurance and freight costs.
This is where the geopolitical story becomes central. The blockade and disruption around the Strait of Hormuz, one of the world’s most important maritime trade chokepoints, have sharply increased the cost and uncertainty of moving goods from India to West Asia and beyond. India relies heavily on Gulf shipping routes not only for energy imports but also for exports of petroleum products, gems and jewelry, engineering goods, rice, and electronics.
The immediate effect for exporters has been a spike in freight charges, war-risk insurance premiums, and delivery delays, all of which erode already thin margins. Nomura described the situation as broad-based weakness across key export categories, with agricultural goods, textiles, chemicals, electronic goods, and gems and jewelry all posting negative growth.
That assessment aligns with what the trade numbers show. The March slowdown was not isolated to one sector or one geography. It was broad enough to signal that India’s external sector is now facing simultaneous shocks from logistics, pricing, and demand. The decline in shipments to the United Arab Emirates, India’s second-largest export destination, was especially severe, while exports to the United States, its largest market, also came under pressure.
This dual-market weakness is particularly concerning because it suggests India is being squeezed from both ends: geopolitical disruption in West Asia and policy-induced friction with the U.S.
For the full financial year ending March 2026, India’s merchandise exports rose less than 1% to $441.78 billion, a figure that illustrates just how much momentum has been lost after the record $451 billion level reached in FY2023.
The tariff dimension has made matters worse. According to industry leaders, the earlier 50% U.S. tariffs on Indian goods, which remained in place from August last year until being cut to 18% in February, were a major drag on export performance.
“U.S. tariffs were a bigger drag on Indian exports this year,” Ajay Sahai, Director-General and CEO of the Federation of Indian Export Organizations, said, adding that the Iran war had now emerged as a fresh layer of uncertainty.
Even before the Middle East conflict escalated, India’s exporters were already contending with weakened price competitiveness in key Western markets. The war has now added supply-chain dislocation and energy cost inflation to an already fragile export environment.
Nomura warned that Indian exporters now face a “troika of headwinds”: rising input costs from the war, sharply higher shipping and insurance expenses, and softer global demand.
That framework is useful because it captures why the recovery may be slow. Even if hostilities ease quickly, trade flows do not normalize overnight. Sahai warned that even if a settlement is reached in April, it could take at least two months for full recovery, as shipping schedules, container availability, and insurance terms would need time to reset.
This lag effect is impactful on India’s near-term macro outlook. A prolonged export slowdown could feed into weaker industrial output, slower manufacturing growth, and pressure on the current account, especially if higher oil prices begin to show up in import data with a delay.
Interestingly, March data showed that imports also weakened. India’s imports fell 6.5% to $59.59 billion, helped largely by a drop in crude oil purchases amid supply disruptions. At $12.2 billion, the oil import bill was the lowest in 13 months, according to Citi.
This temporarily narrowed the trade deficit to $20.67 billion, a nine-month low, which on the surface appears positive. However, the narrower deficit is less a sign of strength than a reflection of compressed trade activity. In other words, both exports and imports are slowing. That is not usually a healthy signal for a trade-dependent growth story.
India had set an ambitious target of reaching $2 trillion in total exports by 2030, including goods and services. Industry leaders now believe that the target may be pushed back by around two years, a notable revision that reflects how geopolitical shocks and trade frictions are forcing a rethink of long-term assumptions.
Market sentiment has already begun to reflect these concerns, with the Nifty 50 and BSE Sensex both lower in recent trading. The bigger risk now is that the March data may represent only the first visible economic impact of a conflict whose full trade consequences are yet to emerge.
