India's current account deficit set to hit 2.2% of GDP in FY27 on oil price surge
Synopsis
India's current account deficit is set to nearly quadruple as a share of GDP in FY27, with Crisil Ratings pinning the blame squarely on elevated oil prices projected at $90–95 per barrel. Even as merchandise exports accelerate and US trade improves, surging imports mean the external balance is under its most significant pressure since FY23.
Key Takeaways
India's current account deficit is forecast to rise to 2.2% of GDP in FY27 , up from 0.6% in FY26 , according to Crisil Ratings .
Brent crude is projected to average $90–95 per barrel in FY27 — approximately 32% higher than FY26.
India's merchandise trade deficit widened to $28.2 billion in May 2026 from $22.6 billion a year earlier.
Merchandise exports grew 18% year-on-year to $45.2 billion in May; imports surged 20.6% to $73.4 billion .
Petroleum exports jumped 54.9% year-on-year in May, largely due to a low-base effect; core exports rose a steadier 12.3% .
India's exports to the US rose to $8.8 billion in May, though tariff uncertainty keeps the outlook 'monitorable', per Crisil.
India's current account deficit (CAD) is forecast to widen sharply to 2.2 per cent of GDP in FY27, up from 0.6 per cent in FY26, as persistently elevated global energy prices continue to strain the country's external balance, according to a Crisil Ratings report released on 18 June 2026. The ratings agency projects Brent crude to average $90–95 per barrel this fiscal year — roughly 32 per cent higher than the previous year.
Oil Prices: The Central Pressure Point
Oil remains the single largest contributor to India's goods trade deficit, and Crisil's projections reflect that structural dependence. Despite expectations of a gradual resolution to geopolitical tensions in West Asia and the announced reopening of the Strait of Hormuz, the report cautions that energy prices are likely to stay elevated on a year-on-year basis. Supply normalisation, analysts note, could take several months to fully materialise, keeping import costs high well into the fiscal year.
Notably, Brent crude averaged $107.1 per barrel in May 2026, down 8.7 per cent from April — yet still at historically elevated levels. Sequentially, petroleum exports eased to $8.4 billion in May from $9.6 billion in April, reflecting the month-on-month decline in crude prices after an extraordinary surge driven by the West Asia conflict.
Trade Deficit Widens in May
India's merchandise trade deficit widened to $28.2 billion in May 2026, compared with $22.6 billion a year earlier, though it narrowed marginally from $28.4 billion in April. Merchandise imports surged 20.6 per cent year-on-year to $73.4 billion in May, accelerating from 10 per cent growth to $71.9 billion in April.
On the export side, merchandise exports posted a broad-based 18 per cent year-on-year acceleration to $45.2 billion in May, up from 13.8 per cent growth to $43.6 billion in April. Petroleum exports led the headline surge, rising 54.9 per cent year-on-year — though Crisil attributes this largely to a statistical low-base effect. Core exports, which exclude oil and gems and jewellery, grew a more measured 12.3 per cent to $34.2 billion.
Gems, Jewellery, and US Trade
The gems and jewellery segment returned to positive territory, recording 6.7 per cent growth after a period of weakness. Meanwhile, India's exports to the United States continued to improve, rising to $8.8 billion in May from $8.5 billion in April — a trend Crisil links to the positive impact of lower bilateral tariffs. However, the report flags that ongoing uncertainty around tariff levels means the trajectory of US-bound exports remains closely monitorable.
What the CAD Widening Means
A CAD of 2.2 per cent of GDP — while still within what most economists consider a manageable range for India — marks a near fourfold increase from FY26's exceptionally low 0.6 per cent. This comes amid a broader reassessment of India's external sector resilience, particularly as foreign portfolio flows remain sensitive to global risk appetite and the Reserve Bank of India (RBI) navigates its own rate cycle. The widening deficit could also exert modest pressure on the Indian rupee if oil prices do not correct meaningfully in the coming quarters.
With global energy markets still in flux and US trade policy an ongoing variable, India's external balance in FY27 will hinge significantly on how quickly West Asia supply disruptions ease and whether export momentum — especially to the US — can be sustained.
Point of View
But the speed of the deterioration — from 0.6% in a single year — is. The FY26 figure was flattered by unusually low oil prices and compressed imports; FY27 is a return to structural reality. What is worth watching is whether the RBI's forex reserve buffer is sufficient to absorb rupee pressure if FII flows turn volatile simultaneously. The US export improvement is real but fragile — it rests on a tariff framework that could shift with the next round of trade negotiations. India's external sector has rarely faced this combination of oil-driven import pressure and trade policy uncertainty at the same time.
NationPress
13 Aug 2026
Frequently Asked Questions
What is India's current account deficit forecast for FY27?
India's current account deficit is forecast to widen to 2.2 per cent of GDP in FY27, up from 0.6 per cent in FY26, according to a Crisil Ratings report. The primary driver is elevated global oil prices, projected to average $90–95 per barrel this fiscal year.
Why is India's current account deficit rising in FY27?
The widening is primarily driven by elevated energy prices, with Brent crude projected at $90–95 per barrel — about 32 per cent higher than FY26. Oil is India's largest goods import, and higher crude costs directly inflate the merchandise trade deficit.
How did India's merchandise trade perform in May 2026?
India's merchandise exports rose 18 per cent year-on-year to $45.2 billion in May 2026, while imports surged 20.6 per cent to $73.4 billion, widening the trade deficit to $28.2 billion from $22.6 billion a year earlier.
What is the outlook for India's exports to the United States?
India's exports to the US improved to $8.8 billion in May 2026 from $8.5 billion in April, supported by lower bilateral tariffs. However, Crisil flags that ongoing tariff uncertainty means the export trajectory remains closely monitorable.
Is a current account deficit of 2.2% of GDP dangerous for India?
Most economists consider a CAD below 3% of GDP broadly manageable for India, given its services surplus and remittance inflows. However, the near fourfold jump from FY26's 0.6% signals a meaningful deterioration in the external balance that could pressure the rupee if oil prices remain elevated and capital flows weaken.
