India's overall economic position stable, oil prices key for CAD in FY27: Report
New Delhi, March 21
India's overall economic position remains stable despite rise in fuel prices, and crude oil prices will be crucial in shaping the country's external balance in FY27, a report said on Saturday.
A sustained rise in global crude oil prices could widen India's current account deficit (CAD), the report from Brickwork Ratings said.
Rising crude prices are likely to weigh on growth and inflation, the report said, adding that India's CAD is estimated at 1.3 per cent of GDP and that for every $10 per barrel increase in oil prices the CAD could widen by about 50 basis points.
A $15 rise per barrel could push the deficit to 1.9 per cent and to about 3.5 per cent with a $40 rise per barrel, the report further said.
Higher oil costs would first hit the external sector by raising India's import bill, which can put continued pressure on the trade balance, especially since the country relies heavily on energy imports. the report added.
If oil prices remain high for a prolonged period, policymakers may need to carefully balance controlling inflation while supporting growth, the report said.
The ratings agency flagged inflationary pressure from fuel and transport costs, saying consumer price inflation, currently estimated at 4.2 per cent, could rise to about 4.65 per cent with a moderate oil price increase and to around 5.85 per cent if prices rise sharply.
"The currency outlook is also closely tied to oil prices. As crude prices rise, the Indian Rupee is expected to weaken, with estimates suggesting it could move toward around INR 93 per $ with a moderate increase in oil prices and closer to rupee 95.8 per dollar if prices rise sharply, " the report said.
A weaker rupee could make imports more expensive and add to inflation, it added.
— IANS
Reader Comments
The numbers are quite stark. A $40 rise pushing CAD to 3.5% is alarming. While the overall position is stable for now, this over-reliance on imported oil is our biggest economic vulnerability. Hope the strategic petroleum reserves are being filled judiciously.
The rupee falling to nearly 96 per dollar is a scary thought. My son is studying abroad and the education expenses become a nightmare when the rupee weakens. The RBI and government have a tough balancing act ahead. Fingers crossed for stable global prices.
While the report highlights risks, I appreciate that it also acknowledges India's stable overall position. We've weathered bigger storms. The focus now should be on accelerating EV adoption and public transport. Every litre of petrol saved is a step towards energy security.
The inflation estimate of nearly 6% if oil spikes is worrying for household budgets. The middle class is already squeezed. I respectfully think the government could do more to cushion the impact through targeted subsidies for essential goods, rather than broad-based fuel subsidies which are fiscally draining.
As someone working in the logistics sector, this report hits home. Fuel is our biggest operational cost. A sharp rise doesn't just affect our profits, it gets passed on to consumers. Stability in oil prices is crucial for keeping the wheels of the economy turning smoothly.
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