Crude oil prices are hovering around $108.96 per barrel, raising concerns over India’s import bill and external balance. According to brokerage firm Motilal Oswal, elevated crude prices, along with strong domestic demand, are likely to keep petroleum imports high and India’s merchandise trade deficit elevated.
If we look at the previous month’s data, India’s merchandise trade deficit has already widened to $30.2 billion in September from $26.9 billion in August. “Going ahead, high crude oil prices and a widening non-oil, non-gold deficit are likely to keep the merchandise trade deficit elevated and exert pressure on the merchandise trade balance,” Motilal Oswal said.
The brokerage expects crude oil prices to average around $90 per barrel in FY27. Meanwhile, the rupee is likely to remain under depreciation pressure amid dollar strength, elevated US bond yields and persistent foreign investor outflows.
Here is what it means for the Indian economy.
India’s CAD seen at 1.4% of GDP in FY27
Assuming crude oil prices average around $90 per barrel in FY27, Motilal Oswal estimates the current account deficit (CAD) at $56 billion, or 1.4% of GDP. The brokerage considers this level manageable, although sustained capital inflows will remain important for maintaining external stability.
India’s current account deficit narrowed to $5.2 billion in August 2026 from $6.1 billion a year earlier. However, the cumulative CAD widened to $18.3 billion during April-August FY27 from $12.8 billion in the corresponding period last year.
Capital outflows pose risks
The overall balance of payments remained in surplus at $58 billion, supported by banking capital inflows and improved net foreign direct investment inflows. However, foreign portfolio investment outflows of $3.7 billion and net external commercial borrowing outflows of $28.3 billion partly offset these gains.
Going ahead, the sustainability of capital inflows will be important as portfolio investment and external borrowing outflows continue to pose risks to the external balance.
Rupee to remain under pressure; may average 96/$ in FY27
The Indian rupee closed at 94.92 against dollar on Monday. Motilal Oswal believes that, Recent Reserve Bank of India (RBI) measures to manage dollar demand and curb rupee volatility could provide near-term support to the domestic currency.
However, the brokerage expects the rupee to average around Rs 96 against the dollar in FY27, indicating continued pressure on the currency.
The outlook for the rupee will depend on global dollar movements, US bond yields, foreign investment flows and the trajectory of crude oil prices.
Overall, India’s external outlook will hinge on crude oil prices, the rupee’s trajectory and the sustainability of capital inflows. While Motilal Oswal expects the current account deficit to remain manageable.
