India’s Current Account Deficit May Jump to 2.2% as Brent Crude Nears $95: Crisil

India’s external sector could come under significant pressure this fiscal year as elevated crude oil prices are expected to widen the country’s current account deficit (CAD), according to a new assessment by Crisil.

The ratings and research agency estimates that India’s CAD could rise sharply to 2.2 per cent of gross domestic product (GDP) in fiscal 2027 from just 0.6 per cent in fiscal 2026, driven largely by higher energy costs and persistent global trade disruptions.

Brent Crude Expected to Stay Elevated

A key concern highlighted by Crisil is the outlook for global oil prices. The agency expects Brent crude to average between USD 90 and USD 95 per barrel during the current fiscal year, around 32 per cent higher than the average level recorded in fiscal 2026.

“Crisil Intelligence expects Brent crude price to average USD 90-95 per barrel this fiscal, ~32 per cent higher than in fiscal 2026. Oil remains the biggest source of the goods trade deficit (36 per cent in fiscal 2026),” the report said.

For an economy that imports more than 80 per cent of its crude oil requirements, sustained high prices translate directly into a larger import bill. This, in turn, widens the trade deficit and puts pressure on the current account balance.

Understanding the Current Account Deficit

The current account deficit measures the gap between the money flowing out of a country for imports of goods and services and the money coming in through exports, remittances and other income streams.

A wider CAD generally indicates that a country is spending more foreign exchange than it is earning. While moderate deficits are manageable, a sharp increase can make an economy more vulnerable to global financial shocks and currency volatility.

According to Crisil, higher crude prices are likely to become a major driver of this widening imbalance.

“Higher oil prices will likely exert greater pressure on the CAD.”

Trade Deficit Continues to Expand

The concern over the current account comes at a time when India’s merchandise trade deficit has already widened.

India’s merchandise trade deficit rose to USD 28.2 billion in May 2026 from USD 22.6 billion in the corresponding month last year.

At the same time, exports continued to grow strongly. Crisil noted that exports witnessed a “broad-based 18 per cent acceleration on-year to USD 45.2 billion in May, compared with 13.8% to USD 43.6 billion in April.”

Petroleum exports rose 54.9 per cent year-on-year, while core exports increased 12.3 per cent to USD 34.2 billion.

However, Crisil said the sharp rise in petroleum exports was influenced by a favourable statistical comparison.

“The on-year jump in petroleum exports was due to a statistical low-base effect and reflected the 66.2% on-year increase in Brent crude prices in May,” Crisil noted.

Oil Export Momentum Loses Steam

While annual export growth remained robust, monthly trends painted a different picture.

India’s oil exports declined to USD 8.4 billion in May from USD 9.6 billion in April. According to Crisil, the fall was driven by lower month-on-month crude prices following an extraordinary surge triggered by tensions in West Asia.

“USD 8.4 billion in May from USD 9.6 billion in April, led by lower crude oil prices on-month, after the extraordinary surge in the past two months on account of the conflict in West Asia,” it said.

The benchmark Brent crude price averaged USD 107.1 per barrel in May, though this was still 8.7 per cent lower than the April average.

Why Energy Markets Remain a Concern

Even as geopolitical tensions in West Asia ease, Crisil believes energy markets are unlikely to return to normal immediately.

“Despite the expected resolution of geopolitical uncertainties in West Asia, energy prices are expected to remain elevated on-year as it will take several months for supplies to normalise fully. Goods exports, too, will have to navigate lingering global trade disruptions,” said Crisil.

This means India could continue facing elevated import costs while exporters deal with a challenging global trade environment.

Outlook for FY27

The combination of expensive crude oil, a widening trade deficit and lingering global supply-chain disruptions is expected to weigh on India’s external balance in fiscal 2027.

“For the current fiscal, we project the current account deficit (CAD) to rise to 2.2% of the gross domestic product (GDP) from 0.6% in fiscal 2026,” said Crisil.

The forecast underscores the importance of energy prices in shaping India’s macroeconomic outlook. With oil accounting for a substantial share of the country’s import bill, the trajectory of Brent crude prices will remain a critical factor determining the health of India’s external accounts over the coming months.

(With inputs from ANI)