Explainer: How persistently high oil prices could impact India's vulnerable economy

Core Viewpoint - India's external balance and government finances are at risk due to high oil prices driven by the ongoing conflict in Iran, which could lead to increased oil import costs and necessary subsidies for key commodities [1][3]. Current Account Deficit - India is highly vulnerable to global oil shocks, importing nearly 90% of its crude and about 50% of its gas, with current oil stocks sufficient for only 20 to 25 days [2]. - An average oil price of $100 per barrel could widen India's current account deficit to 1.9%-2.2% of GDP for the 2026/27 financial year, up from a projected 0.7%-0.8% [4]. Fiscal Deficit - The federal government's annual expenditure may increase by 3.6 trillion rupees ($39 billion) if oil prices average $100 per barrel, with total estimated expenditure for the next financial year at 53.5 trillion rupees [5]. - Fertilizer subsidies could rise by 200 billion rupees, and the government may need to compensate oil marketing companies to keep retail fuel prices low [6]. Growth and Inflation Impact - India's economy is projected to grow over 7% in the next financial year, but if oil prices remain around $100 per barrel, GDP growth could decline to 6.6% and inflation could rise to 4.1% [8]. - If oil prices average $130 per barrel, GDP growth could drop further to 6% [8].