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India's CAD May Hit 2% of GDP by FY27 if Oil Prices Stay Elevated: Crisil

A Crisil report projects India's current account deficit could widen to 2% of GDP by fiscal 2027 if crude oil prices average between USD 82-87 per barrel. The base case scenario, with oil at USD 75-80 per barrel and benefits from US tariff relaxations, still sees the CAD rising to 1.5%. The ongoing West Asia conflict and subdued global growth present significant risks to exports and commodity prices. While a healthy services trade surplus will provide a cushion, March goods exports contracted by 7.4% year-on-year, led by a sharp drop in gems and jewellery.

Key Points: India's Current Account Deficit Could Widen to 2% of GDP by FY27

  • CAD may widen to 1.5-2.0% of GDP by FY27
  • Higher oil prices (USD 82-87/bbl) are a key risk
  • Services surplus to partially offset goods deficit
  • West Asia conflict remains a critical monitorable
2 min read

India's current account deficit in FY27 may rise to 2% of GDP even if oil stays at USD 82-87 per barrel: Crisil

Crisil report warns India's CAD may rise to 2% of GDP by FY27 under higher oil price scenarios, highlighting risks from global trade and West Asia conflict.

"If oil price were to rise to USD 82-87/bbl... then the CAD could rise to 2.0 per cent of GDP - Crisil Report"

New Delhi, April 17

India's current account deficit is likely to touch 2 per cent of GDP under higher oil price scenarios, according to a report by Crisil.

The report stated that in its base case scenario, assuming exports benefit from US tariff relaxations and crude oil prices average between USD 75-80 per barrel, the CAD is expected to widen to 1.5 per cent of GDP in fiscal 2027, compared to a projected 0.8 per cent in fiscal 2026.

However, in an alternate scenario where crude oil prices stay at USD 82-87 per barrel, which the report noted appears plausible given current global conditions, the CAD could increase to 2.0 per cent of GDP. It added that a healthy services trade surplus is expected to limit the extent of the widening deficit.

It stated, "If oil price were to rise to USD 82-87/bbl, which is our alternate case and looks plausible now, then the CAD could rise to 2.0 per cent of GDP".

The report highlighted that the ongoing West Asia conflict and its duration and scale remain critical factors to monitor, as they could significantly impact global trade and commodity prices.

Elevated uncertainties and subdued global growth, particularly in the case of supply shocks, may weigh on exports despite some expected support from reduced US tariffs.

On the trade front, India's goods exports contracted 7.4 per cent year-on-year to USD 38.9 billion in March, compared to an average growth of 0.3 per cent in the three months ended February.

The report mentioned that the decline was partly attributed to a high base effect due to export frontloading last year ahead of anticipated US tariff hikes, as well as the impact of the West Asia conflict.

The contraction in exports was led by a sharp 29.3 per cent drop in gems and jewellery exports. The report noted that the United Arab Emirates has recently emerged as India's top destination for gems and jewellery exports, surpassing the United States. Core exports also declined 7.5 per cent year-on-year, indicating broad-based pressure.

Despite these challenges, exports to the United States showed some improvement, rising to USD 8 billion in March from USD 6.6 billion in February. This was supported by progress in trade discussions, with US tariffs on Indian goods reduced from 50 per cent to 18 per cent and subsequently to 10 per cent. However, the report cautioned that uncertainties around the trade deal remain.

- ANI

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Reader Comments

P
Priya S
The shift in gems & jewellery exports to UAE is interesting. It shows our trade is diversifying, which is good for long-term stability. But the overall decline is worrying. Hope the US trade deal gets finalized soon to provide some relief. 🤞
R
Rohit P
CAD at 2% is manageable if our forex reserves are strong, which they are. The bigger issue is the "broad-based pressure" on core exports. We need to boost manufacturing competitiveness beyond just a few sectors. Make in India needs a second wind.
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Sarah B
As someone watching from outside, it's a classic emerging market challenge. Global volatility hits hard. But India's services surplus is a massive cushion that many countries don't have. That's your real strength.
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Vikram M
The West Asia conflict mention is key. It's not just about oil prices, but shipping costs and insurance too. Our diplomacy there needs to be top-notch to protect our economic interests. A delicate balance to maintain.
K
Karthik V
While the report is factual, I feel it's a bit too focused on negatives. The US tariff reduction is a big positive that will show results with time. Also, 1.5% CAD in the base case is not alarming at all for a growing economy of our size.
M
Meera T
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