India’s oil import surge threatens to widen trade deficit in FY27: Crisil report

A new report by Crisil, titled "Oil's not well", warns that India’s oil trade deficit is set to widen significantly in FY27. The core issue is simple but structural: India depends heavily on imported crude oil, and that dependence is becoming more costly again.

“India's crude oil trade deficit has been under the pump historically because of having to meet over 85% of its annual requirement from imports,” the report said.

India imports more than 85 per cent of its crude oil needs. Domestic production has not kept pace with demand, which has steadily increased due to economic growth, urbanisation, and rising energy consumption.

This means any global price rise directly impacts India’s import bill and, by extension, its trade deficit.

What do the numbers show?

The report highlights a clear long-term trend. India’s oil imports have climbed from nearly 190 million tonnes in FY14 to well above 300 million tonnes in FY26. Meanwhile, exports of refined petroleum products have remained largely stagnant.

This imbalance has led to a widening oil trade deficit, especially in recent years.

What has changed recently?

Traditionally, when global crude oil prices fell, India’s oil trade deficit would narrow. That pattern appears to have broken.

“Consequently, the oil trade deficit in dollar terms rose, despite crude oil prices trending down in that period,” Crisil said, adding that this marked “a break from the past when the deficit used to narrow as crude oil prices fell”.

This shift is largely due to weak growth in petroleum exports, which have not kept up with rising imports.

How are exports contributing to the problem?

India exports refined petroleum products, but growth in this segment has been flat. After a temporary spike post-Covid-19, exports have declined for two consecutive fiscals starting FY24.

This means India is importing more crude but not exporting enough refined products to offset the cost.

What is expected in FY27?

The outlook is concerning. Crisil expects Brent crude prices to average between USD 90–95 per barrel in FY27, significantly higher than USD 70.3 per barrel in the previous fiscal.

Higher prices combined with rising import volumes could further widen the oil trade deficit.

What does this mean for the overall economy?

A rising oil trade deficit directly impacts India’s current account deficit (CAD), which measures the gap between what the country earns and spends in foreign exchange.

“With the prospect of oil trade deficit increasing and likely pressure on remittances from West Asia, we forecast India's current account deficit (CAD) to rise to 2.2% this fiscal from an estimated 0.8% last fiscal,” the report said.

A higher CAD can put pressure on the rupee, increase borrowing costs, and limit economic flexibility.

Why are remittances also a risk factor?

India receives significant remittances from workers in West Asia, a region heavily dependent on oil. If oil-driven economic stress impacts those economies, remittance flows to India could weaken, compounding the external balance problem.

(With inputs from ANI)