India’s fiscal deficit may exceed the budgeted target in the current financial year and touch 4.5 per cent of GDP, as higher energy prices and policy responses to the West Asia conflict could increase public spending. The pressure is linked to rising crude oil costs, possible subsidy support, and measures to protect key industries from supply disruptions.
Fiscal Deficit Outlook
India had budgeted a fiscal deficit of 4.3 per cent of GDP for 2026-27, slightly below the revised estimate of 4.4 per cent for 2025-26. The latest projection suggests that the deficit could widen further if the Government expands support for energy, fertiliser and affected industries. Fiscal deficit refers to the gap between total expenditure and total revenue.
Impact of Strait of Hormuz Tensions
The Strait of Hormuz is a critical global shipping route through which around 20 per cent of the world’s natural gas and crude oil passes. Any disruption in this corridor can push up global oil prices. Brent crude has already risen sharply, increasing the cost burden for India, which imports most of its energy needs.
Possible Policy Response
The Government may consider:
- Redirecting critical inputs to priority industries.
- Restraining business costs for affected firms.
- Increasing support for energy and fertiliser subsidies.
- Restricting exports of scarce inputs such as helium and sulphur.
Sulphur is important for fertiliser production, making it necessary to avoid disruptions in agriculture, which employs a large share of India’s workforce.
Fiscal Measures and Spending Priorities
To cushion the economy, the Government has created a ₹1 lakh crore Economic Stabilisation Fund. However, this may add to fiscal expenditure. To keep total spending under control, some energy-intensive infrastructure projects could be deferred to the next financial year. The overall challenge remains balancing fiscal consolidation with support for growth and inflation-sensitive sectors.
Last Modified: April 25, 2026