India’s FY25 CAD Target at Risk Due to Rising Oil Prices
Higher Oil Prices Challenge India’s Economic Stability
India’s current account deficit (CAD) is under pressure in FY25. The main reason is the surge in global crude prices. A report by Union Bank of India (UBI) highlights that a $10 increase in oil prices could widen the annual CAD by $15 billion.
Important Points to Note
- UBI maintains its CAD forecast at 0.9% of GDP for FY25.
- Commodity price trends, especially in crude oil and metals, are major concerns.
- CAD is projected to widen to 1.2% of GDP in FY26.
Recent Oil Price Movements
Brent crude has fluctuated between $64 and $76 per barrel in the past month. It has surged by 14% in the last 15 days due to geopolitical tensions. This trend could greatly affect India’s trade deficit and overall external sector health.
Potential Risks and Solutions
Global commodity prices remain a significant risk. However, weak global demand and slow export growth might lessen the impact on the trade balance. Further escalation in Middle East tensions could strain India’s import bill due to the CAD’s high sensitivity to oil prices.
Positive Factors
India’s invisible surplus, driven by services exports, remains robust. The country recorded a services trade surplus of $188.75 billion in FY25. This helped offset a $122.45 billion oil trade deficit.
Looking Ahead
Geopolitical developments, including tariff actions and new trade agreements with the US or Europe, will shape India’s external sector outlook in the coming quarters.
