Trade gap and inflation: Is the West Asia crisis set to worsen India’s economic pressures?

India faces mounting economic strain as a widening trade deficit, surging import costs and global disruptions begin to bite, with early signs of pressure visible from factories to households.

India’s trade balance swung into a deficit of about $4 billion in February 2026, reversing last year’s surplus. Imports climbed sharply to $80.1 billion, exceeding export earnings of $76.1 billion.

While services exports, particularly in IT, continue to provide some resilience, the trade in physical goods has slowed markedly. This imbalance is leaving the economy more exposed to external shocks at a time of heightened global uncertainty.

West Asia conflict disrupts energy lifeline

The ongoing conflict in West Asia is emerging as a major risk to trade flows. Officials indicate conditions could worsen in March as logistics become increasingly strained, with large parts of global shipping routes constrained.

India remains heavily dependent on imports for energy, sourcing 90% of its crude oil and nearly half of its LPG from overseas markets. The disruption is compounded by the effective closure of the Strait of Hormuz, through which a significant share of these supplies typically passes.

As a result, crude oil prices have surged beyond $100 per barrel. The impact is already being felt beyond markets, with reports of cooking gas shortages and industrial units halting operations due to fuel constraints.

Inflation pressures build across sectors

Wholesale inflation rose for the fourth consecutive month to 2.13% in February, an 11-month high. Analysts expect this to climb further, potentially reaching 3.7% or higher in March as elevated energy costs filter through.

Although some vegetable prices eased, essential items such as pulses, potatoes and meat recorded increases. Manufacturing costs are also rising, particularly in metals and textiles, raising concerns that these pressures could soon reach consumers.

There are growing fears that retail inflation could approach 6% by the autumn, despite earlier rate cuts by the Reserve Bank of India aimed at supporting growth.

Daily earners, industry feel immediate impact

The economic strain is already visible on the ground. In Gujarat, nearly 98% of engineering firms have shut down due to fuel shortages, disrupting production.

At the same time, rising fuel costs are hitting the country’s 12 million gig workers. Delivery drivers report that their earnings have more than halved, as fuel expenses consume a large share of their income. Many warn that without intervention, sustaining livelihoods may become unviable.

Trade patterns shift amid global pressures

India’s trade relationships are also evolving. Exports to the United States declined by nearly 13%, partly linked to tariffs, though recent duty reductions may take time to reflect in data.

The trade deficit with China has crossed $100 billion. While exports to Germany and Italy have increased, shipments to the UK and Saudi Arabia have declined.

Meanwhile, imports from Switzerland surged seven-fold in February, driven largely by gold purchases. With the rupee at record lows against the US dollar, import costs are rising further, intensifying economic pressure.

Supply chain management and reducing logistics costs are now seen as key to limiting further strain on the domestic economy.