Rising crude may stretch CAD to 2.5% of GDP in FY19: Report

According to SBI Ecowrap, every $10/barrel increase in oil price results in additional import bill of $8 billion.

Rising crude oil prices may worsen the current account deficit (CAD) to 2.5 per cent of the GDP in the current financial year, says a SBI report.

The CAD - difference between inflow and outflow of foreign exchange - is estimated at 1.9 per cent for 2017-18.

According to SBI Ecowrap, every $10/barrel increase in oil price results in additional import bill of $8 billion.

This in turn will decrease GDP by 16bps, increase fiscal deficit by 8bps, CAD by 27bps and inflation by 30bps, the research report said adding these are just model estimates and actuals could be much different.

"...crude prices are expected to impact imports. This will stretch the 2018-19 CAD to 2.5 per cent of GDP. The exports need further push so that the external metrics remain stable," the report said.

The report further said for 2017-18, the exports grew at 9.78 per cent.

With April 2018 exports exhibiting only 5.17 per cent growth, it appears that the outbound shipment have still not overcome the GST implementation issues, it noted. Crude price rise by $17 in the span of a year has been reflected in the imports, showing a growth of 19.59 per cent.

"Crude prices are expected to rise further this year and we expect imports to grow by at least 14 per cent," the report said and added that worsening of the trade deficit can impact the rupee further.

FII inflows have also not been benevolent this year. Between April-May 2018, outflows to the tune of $5 billion have happened.

The twin impact of FII outflows and worsening trade balance can hit rupee further. So, the exports (both services and merchandise) need further push to keep the external metrics stable.

Photograph: Reuters