Crude Oil Prices Set to Widen India's Current Account Deficit

India's current account deficit (CAD) is expected to widen due to rising crude oil prices, according to Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The price of Brent crude has declined to around $98 a barrel from its recent high of $106-$107 a barrel, but the Indian basket of crude, which includes Dubai, Oman, and light Brent crude, is still trading higher at over $120 a barrel.

For every dollar increase in crude prices, India's import bill rises by an additional $1.5 billion to $1.8 billion, leading to a widening CAD and subsequent rupee depreciation, which fuels imported inflation.

The government has been absorbing the subsidy burden for oil price increases but if the price remains elevated, it will lead to a fiscal deficit expansion, exceeding budget estimates, and further inflation.