India’s current account deficit may widen to 2.3% in FY27 as oil prices rise: HSBC

India’s current account deficit (CAD) is likely to widen sharply to 2.3 per cent of GDP in FY27 from 0.9 per cent in FY26 amid elevated oil prices and external sector pressures, according to a report by foreign brokerage HSBC, PTI reported.The report also projected the balance of payments (BoP) deficit to widen to $65 billion in the current fiscal year from $35 billion in the previous fiscal.HSBC said its estimates were based on assumptions of crude oil averaging $95 per barrel, combined with trends across oil, gold, core goods, services trade and remittances.“HSBC said it has assumed crude prices to average USD 95 a barrel, and combined it with sensitivities in oil, gold, core goods, services trade and remittances to arrive at a current account deficit of 2.3 per cent of GDP in FY27 as against 0.9 per cent in FY26.”The report said the BoP projections were prepared after assessing trends in portfolio inflows, foreign direct investment (FDI) and external commercial borrowings (ECBs).It also examined India’s foreign exchange reserves and said the current reserve position of nearly $700 billion appears comfortable from a traditional perspective but needs to be viewed differently amid heightened global risks.“Using a dynamic approach, we benchmark adequacy ratios against the lowest 10th percentile thresholds from India’s own history to make sure minimum support levels are available,” the report said.It added that while India currently remains above these thresholds, the projected BoP scenario could put pressure on reserve adequacy.“Around USD 30 billion of extra forex reserves via extra inflows or current account savings would keep all buffers above the 10 per cent threshold,” it said.The report flagged a dual challenge for policymakers.“There is a two-fold challenge: lower the CAD and attract capital inflows that are sustainable,” it said.HSBC suggested a range of policy measures, including higher retail fuel prices.“There is evidence from 2022 that adequate pump diesel and petrol price increases can take care of two-thirds of the extra funds needed,” it said.The report also said operationalising recently signed trade agreements could strengthen India’s growth outlook and support FDI inflows, which have slowed.Additionally, it suggested that aligning tax treatment across asset classes and recalibrating India’s taxation framework for foreign investments could help deepen markets and support sustainable capital inflows.