Higher Oil Prices May Push India's Current Account Deficit to 2.2% of GDP in FY27: Crisil

New Delhi: India's current account deficit (CAD) is expected to widen sharply to 2.2 per cent of GDP in FY27 from an estimated 0.6 per cent in FY26, as persistently high global crude oil prices put pressure on the country's external balance, according to a report released by Crisil Ratings on Thursday.

The ratings agency expects Brent crude oil to average between $90 and $95 per barrel during the current financial year, nearly 32 per cent higher than the average recorded in FY26.

Since crude oil remains India's largest contributor to the merchandise trade deficit, elevated energy prices are likely to weigh heavily on the country's external account. The report noted that although geopolitical tensions in West Asia are expected to ease and the Strait of Hormuz has reopened, oil prices are likely to remain elevated for several months as global supplies gradually return to normal.

India's merchandise exports posted robust growth in May, rising 18 per cent year-on-year to $45.2 billion, compared to a 13.8 per cent increase to $43.6 billion in April.

However, imports grew at an even faster pace, surging 20.6 per cent year-on-year to $73.4 billion, following a 10 per cent rise in April. As a result, the country's merchandise trade deficit widened to $28.2 billion in May from $22.6 billion in the same month last year, although it narrowed marginally from April's $28.4 billion.

Petroleum exports climbed 54.9 per cent year-on-year, while core exports—excluding oil and gems and jewellery—increased 12.3 per cent to $34.2 billion. Gems and jewellery exports also returned to growth, expanding 6.7 per cent during the month.

The report attributed the sharp rise in petroleum exports largely to a low-base effect. Meanwhile, Brent crude averaged $107.1 per barrel in May, down 8.7 per cent from April. Lower crude prices during the month led to petroleum exports declining sequentially to $8.4 billion from $9.6 billion in April, after a sharp rise in the previous two months driven by the West Asia conflict.

On the export front, shipments to the United States continued to improve, increasing to $8.8 billion in May from $8.5 billion in April, aided by lower tariffs. However, Crisil cautioned that uncertainty over future tariff levels means the outlook for exports to the US will need close monitoring.

With inputs from IANS 

Advertisement