A sustained rise in crude oil prices could widen India’s current account deficit (CAD), push up inflation and weigh on economic growth, economists and market observers cautioned on Monday.
Finance minister Nirmala Sitharaman, however, informed the Lok Sabha that the government does not expect inflation to rise substantially because of the recent spike in global crude prices.
“Between the end of February and up till March 2, 2026, the crude oil FOB price (Indian basket) rose from $69.01 per barrel to $80.16 per barrel.
Given that India’s inflation is near the lower bound, the impact on inflation is not estimated to be substantial at this point,” Sitharaman said in a written reply to a Lok Sabha question.
India’s consumer price index inflation stood at 2.75 per cent in January, with 2024 as the base year.
The Reserve Bank of India maintains an inflation tolerance band of 2–6 per cent. India’s current account deficit stood at 1.3 per cent of GDP in the third quarter of FY26.
CAD count
Estimates by the research wing of the State Bank of India suggest that every $10 per barrel increase in crude oil prices could widen the CAD by about 36 basis points and raise inflation by 35–40 basis points.
The report outlines five scenarios with oil prices ranging from $90 to $130 per barrel, under which the CAD widens, inflation rises and GDP growth moderates (see chart).
“In the worst-case scenario, if oil prices reach $130 per barrel, GDP growth may fall to around 6 per cent, assuming a baseline growth of about 7 per cent in FY27,” SBI Research said in its report.
Before the escalation of tensions in West Asia, chief economic adviser V. Anantha Nageswaran had on February 27 projected India’s growth at 7–7.4 per cent in FY27, revising the earlier Economic Survey estimate of 6.8–7.2 per cent.
Economists note that the $100 per barrel level is a key threshold.
“Up to $100 per barrel, the impact on current account deficit, inflation and growth is manageable. But once it crosses $100 per barrel, the impact becomes exponential,” said Soumya Kanti Ghosh, group chief economic adviser at SBI.
If inflation accelerates, attention could also shift to the RBI’s policy stance, with higher crude prices potentially complicating the central bank’s efforts to balance inflation management with currency stability.
“Higher crude prices have stoked fears that the RBI’s policy may need to change course — though whether inflation or currency concerns will dominate its thinking remains an open question,” SBI Capital Markets said in a report.
So far, the central bank’s response has largely involved intervening in the foreign exchange spot market to curb excess volatility and help stabilise the rupee.