India is preparing for a wider-than-targeted fiscal deficit in the current financial year as the ongoing conflict involving Iran drives up energy costs and increases pressure on government finances, according to a Bloomberg News report citing an official familiar with the matter.
The report said the government could allow the fiscal deficit to widen by as much as 50 basis points to 4.8% of GDP, compared with the budgeted target of 4.3% for FY2026-27, which began on April 1.
The development comes amid rising crude oil prices and disruptions to global energy supplies following the closure of the Strait of Hormuz, a critical shipping route for oil exports. India, the world’s third-largest oil importer and consumer, imports nearly 90% of its crude oil requirements, making it particularly vulnerable to prolonged supply disruptions.
Higher fuel costs have already prompted state-run oil marketing companies to raise petrol and diesel prices by around 8%. At the same time, the government faces mounting subsidy obligations, particularly for fertilizers and household cooking gas. Fertilizer subsidy expenditure is expected to rise by nearly 20% during the current fiscal year, according to earlier government estimates.
Bloomberg reported that authorities are currently keeping their options open and plan to reassess the fiscal outlook later this year once there is greater clarity on subsidy requirements and non-tax revenue collections. The government is also evaluating potential expenditure rationalization measures across ministries to help contain the fiscal deficit.
Reuters said it could not independently verify the Bloomberg report and that India’s Finance Ministry had not immediately responded to requests for comment.
The evolving geopolitical situation in West Asia continues to pose significant risks to India’s economy, particularly through its impact on energy imports, inflation, and fiscal management.
