Economists now expect the second-half CAD to go past 2% of the gross domestic product (GDP) from June levels.
CAD for the June quarter ended lower than consensus at 1.1% of GDP, the latest central bank data showed, almost half of the 2.1% of GDP in the same period a year ago. However, the gap widened sequentially, paced largely by a contraction in the trade deficit during the period.
Crude prices play a major role in determining CAD accounting as fuel accounts for more than a fourth of India's import basket. Prices of Russian crude, which accounts for a third of India's fuel imports, have risen since August, increasing the probability of a wider current account gap for the rest of the fiscal year.
Russian crude touched $80 a barrel from an implied price of $66 a barrel during the June quarter. In September, the upward pressure on crude oil prices rose due to supply-side cuts by OPEC and stronger-than-expected crude oil demand. A $10 per barrel increase in oil prices worsens India's current account position by nearly $10-12bn or 30-32bps of GDP, according to Barclays Research. Looking ahead, the CAD is likely to increase in the second quarter to 2.2-2.4% of GDP according to estimates by HDFC Bank.
The surge in crude oil prices is expected to add further upward pressure on the trade deficit.
"In case crude oil prices average $100 per barrel in the second half of FY24, the full-year current account deficit could widen to 2.1% of GDP, which is within sustainable levels," said Gaura Sengupta, India economist at IDFC First Bank.
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