Oil at $92-95/bbl puts CAD and fiscal math under pressure in FY27

India faces significant economic pressure as crude oil prices are projected to stay high, hovering between $92 and $95 per barrel in the upcoming fiscal year 2027. Geopolitical uncertainties and ongoing supply chain disruptions are cited as primary drivers for this sustained elevated cost, making a return to pre-conflict levels of around $65 per barrel unlikely, according to a report by Prabhudas Lilladher.

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We believe crude prices are unlikely to revert to pre-Gulf war conflict levels of USD65/barrel. The second level impact of high crude prices and supply chain disruption is likely to impact demand over coming months.

The brokerage firm estimates that this price scenario will substantially increase India's import bill by approximately $70 billion, pushing it to around $180 billion for an estimated daily consumption of 4.3 million barrels. Furthermore, higher freight and insurance costs will add to the final landed price of fuel. The impact on domestic subsidies is also expected to be steep, with significant price hikes in fertilizers like urea, DAP, sulphur, and ammonia potentially inflating the budgeted subsidy bill of Rs1.7 trillion.

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This is likely to significantly inflate the budgeted subsidy bill of Rs1.7 trillion.

Despite government measures such as increasing petrol and diesel prices and cutting excise duties, losses on petroleum products are anticipated to persist. Heavy losses on domestic Liquefied Petroleum Gas (LPG) will further strain fiscal calculations. Externally, the current account deficit (CAD), already estimated at around 2% of GDP for FY27, faces an upward bias due to the volatile global environment and sluggish international trade. Currency depreciation and potential foreign portfolio investor outflows add to these external pressures.

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an upward bias given geopolitical uncertainty and sluggish global trade despite recent fiscal and monetary interventions.

In response to economic challenges, the government has already imposed restrictions on gold imports. While there are hopes for the relaxation of certain taxation and regulatory hurdles for foreign portfolio investments, the sustained high oil prices and disrupted supply chains present ongoing risks. The fiscal cushion will largely depend on the government's willingness to sacrifice subsidy amounts and excise revenue to keep retail fuel prices in check. Until geopolitical tensions ease, the CAD and fiscal arithmetic will remain critical watchpoints for both markets and policymakers in India.

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irritants around taxation and regulations regarding FPI investment in both debt and equity markets are being relaxed, which will have positive implications in LT.