India’s economic stability remains intact despite the recent surge in fuel prices, with the trajectory of crude oil prices expected to significantly influence the country’s external balance in FY27, according to a report by Brickwork Ratings. A sustained increase in global crude oil prices has the potential to expand India’s current account deficit (CAD), the report highlighted.
The report emphasized that the escalating crude prices are likely to exert pressure on growth and inflation. It projected India’s CAD to stand at 1.3% of GDP, noting that for every $10 per barrel increment in oil prices, the CAD could widen by approximately 50 basis points. Furthermore, a $15 rise per barrel could elevate the deficit to 1.9%, and a $40 surge per barrel could push it to about 3.5%.
Higher oil expenses would primarily impact the external sector by elevating India’s import bill, thereby exerting sustained pressure on the trade balance, especially given the country’s heavy dependence on energy imports, the report added. In the event of prolonged high oil prices, policymakers may face the challenge of balancing inflation control with growth support.
The report also highlighted the inflationary concerns stemming from fuel and transport expenses, indicating that consumer price inflation, presently at 4.2%, could climb to approximately 4.65% with a moderate increase in oil prices and reach around 5.85% in the case of a sharp price escalation. It further noted that a weaker rupee, anticipated as crude prices rise, could lead to import cost escalation, contributing to inflationary pressures.
