New Delhi: India’s current account deficit (CAD) is likely to rise to 3% of the gross domestic product (GDP) in the July-September quarter (Q2) of 2018-19, from 2.4% in the preceding quarter, driven mainly by high crude oil prices, ICRA said Monday. ICRA expects the current account deficit to widen sharply to $19-21 billion, or 3% of GDP, in Q2 FY19, from $7 billion in Q2 FY18, led by higher crude prices and gold imports, the credit ratings agency said in a statement.

“CAD would widen to $68-73 billion (2.6% of GDP) in FY19 from $48.7 billion in FY18 (1.9% of GDP), if the price of the Indian basket of crude oil averages at $72/barrel in FY19," ICRA principal economist Aditi Nayar said.

The CAD, which is the difference between the inflow and outflow of foreign currency, stood at 1.9 per cent of GDP in 2017-18 fiscal and 0.6% of GDP in 2016-17.

ICRA, however, noted that the subsequent correction in crude oil prices has eased concerns regarding the size of the current account deficit in October-March period of current fiscal.

Brent crude futures which was trading around $80/barrel in September, has fallen to around $62/barrel.

“The recent correction in crude oil prices has doused concerns regarding the size of India’s current account deficit in H2 (October-March) FY19. Moreover, a seasonal uptrend in exports should help moderate the current account deficit in H2 FY19 relative to H1 FY19," Nayar added.

Following the year-on-year surge in crude oil prices, India’s net import bill related to petroleum, crude and crude related products increased by a sharp 60% to $23 billion in September quarter this fiscal, from $14 billion in the same period last fiscal.

Additionally, gold imports rose by 61% to $9 billion in Q2, from $6 billion in the year-ago period.

These two item groups account for around 80% of the rise in India’s merchandise trade deficit in the second quarter of the fiscal, relative to the year-ago quarter, ICRA said.