India’s trade deficit shrinks as US exports counter Mideast woes

India's merchandise trade deficit unexpectedly narrowed to $20.67 billion in March, government data showed on Wednesday, as a surge in exports to the United States helped cushion the impact of the ongoing Iran war, which has disrupted shipping routes and inflated energy costs.

Merchandise exports rose to $38.92 billion in March from $36.61 billion in the previous month, while imports fell to $59.59 billion from $63.71 billion, data showed.

The numbers underscore the opposing forces shaping India's export outlook: supply disruptions and surging logistics costs stemming from the Iran conflict and a partial revival in U.S. demand. While lower U.S. tariffs have bolstered shipments, exporters have warned about rising freight and insurance costs, alongside severe delays near the Strait of Hormuz - a critical supply route.

The war has prompted Iran to effectively shut the Strait of Hormuz, a crucial global waterway for crude and gas transport, disrupting energy supplies for net energy importer India, while crimping its trade with the Middle East. The U.S. has completely halted trade going in and out of Iran by sea, even though President ​Donald Trump said talks with Tehran on ending the war could resume this week.

"Exports to the Middle East in March dropped by $3.5 billion... this has impacted goods exports in the month," Rajesh Agrawal, India's trade secretary, told reporters.

India - unlike Japan, South Korea and Taiwan - depends on the Gulf shipping routes to move its products.

Economists had expected India's trade deficit to widen to $32.75 billion, according to a Reuters poll, compared with a deficit of $27.1 billion in February.

On the services front, the government estimates exports in March at $35.20 billion and imports at $16.96 billion, resulting in a services trade surplus of $18.24 billion, according to Reuters calculations.

(Reporting by Shivangi Acharya and Manoj Kumar; Editing by Mrigank Dhaniwala)