India is set to see a sharp rise in its current account deficit, with projections indicating a jump to 2.2 percent of GDP in fiscal year 2027, up from just 0.6 percent the previous year. The primary driver of this widening deficit is the continued surge in global energy prices, particularly crude oil, which remains the largest contributor to the country’s goods trade imbalance.

Crisil Ratings anticipates Brent crude prices to average between $90 and $95 per barrel in the fiscal year, a significant increase from the previous period despite recent geopolitical developments. Although tensions in West Asia appear to be easing and the reopening of the Strait of Hormuz may improve supply routes, analysts expect oil prices to stay elevated for several months as markets adjust.

India’s trade dynamics reflect these pressures. Merchandise exports showed robust growth, accelerating to $45.2 billion in May, an increase of 18 percent year-on-year, while imports surged by more than 20 percent to $73.4 billion. This trade imbalance expanded the merchandise trade deficit to $28.2 billion in May, up sharply from the previous year and only slightly lower than April’s peak.

Within exports, petroleum products experienced a notable increase of nearly 55 percent year-on-year, driven largely by a statistical low base rather than sustained demand. Core exports excluding oil and gems and jewellery also grew by over 12 percent, reaching $34.2 billion. Gems and jewellery rebounded with modest growth, while exports to major markets like the US continued to strengthen, benefiting from lower tariffs, though future trade performance remains uncertain due to potential tariff fluctuations.

The elevated oil prices also affected petroleum export values, which fell sequentially from $9.6 billion in April to $8.4 billion in May as Brent crude prices moderated slightly. Brent crude traded at an average of $107.1 per barrel in May, marking a decrease from April’s levels but remaining high relative to historical norms.

This complex combination of surging import costs driven by energy prices and steady export growth underscores challenges for India’s external balance. The persistent energy price pressure complicates efforts to narrow the current account deficit even as merchandise exports expand across various sectors.