New Delhi, Mar 30 (KNN) India’s external sector is facing mounting pressures amid a volatile global environment, with weakening exports, rising imports, and capital flow volatility contributing to widening imbalances, according to the Finance Ministry’s Monthly Economic Review for March 2026.
The report highlighted a marginal decline in merchandise exports, which fell by 0.8 percent year-on-year, reflecting subdued global demand and persistent uncertainties. In contrast, imports grew sharply by 24.1 percent, leading to a significant expansion in the trade deficit, reported ANI.
The surge in imports was largely attributed to a sharp increase in gold and silver imports, which placed additional strain on the trade balance. As a result, India’s merchandise trade deficit widened substantially to USD 27.1 billion in February 2026, compared to USD 14.4 billion in the same month last year.
Current Account Deficit Expands
The widening trade gap has also impacted the broader balance of payments position. The review noted that the current account deficit (CAD) increased to 1.3 percent of GDP in the third quarter of FY2026, up from 1.1 percent in the corresponding period of the previous year, despite continued resilience in services exports.
This trend indicates a growing reliance on external financing to manage the deficit.
Capital Outflows and Global Risks Weigh on Markets
On the capital account front, global risk aversion linked to geopolitical tensions has weakened investor sentiment. The report pointed out that portfolio investment flows remained negative in March 2026, reflecting cautious global investor behaviour.
The volatility in capital flows has added to financial market uncertainty and exerted pressure on the external sector.
Rising global crude oil prices, driven by tensions in West Asia, have further compounded the situation. Given India’s heavy dependence on energy imports, higher oil prices are expected to increase the import bill and widen the trade deficit further.
Rupee Under Pressure
The combined impact of widening trade deficits and capital outflows has also weighed on the currency. The review noted that these factors have contributed to depreciation pressures on the Indian rupee in recent weeks.
The Finance Ministry indicated that evolving global conditions, particularly commodity price volatility and geopolitical developments, will remain key factors influencing India’s external sector stability in the near term.
(KNN Bureau)
2012-01-26
