India does not view its fiscal deficit goal for the financial year that began on April 1 as under immediate threat, two government sources told Reuters, even as New Delhi evaluates the budgetary impact of the ongoing Middle East crisis. Officials are discussing selective austerity measures, including curbing outlays by ministries that have limited ability to absorb allocated funds, but remain determined to maintain investment in transportation infrastructure seen as vital for growth and employment.
Budget stance preserved for now
In February, the government set a fiscal deficit objective of 4.3% of GDP for the 2026/27 financial year, down from 4.4% in the prior year. Despite a sharp rise in oil prices linked to the Iran war, which has increased the fiscal burden, the sources said the government would not immediately revise its budget projections. "For India to revise its budget projections, the current situation would need to persist for at least two to three months," one of the sources said.
Officials are nonetheless examining cost-saving measures. The conversations include possible spending curbs in departments that may not be able to fully deploy their allotted funds within the year. The sources did not provide further detail on the magnitude or specific targets of any austerity steps.
Pressure from higher commodity prices and duty cuts
Global commodity price increases are expected to push up government spending on fertilisers and petroleum subsidies, which are budgeted at 1.83 trillion rupees ($19.69 billion) for 2026/27. The federal government has already reduced excise duties on fuel to blunt the pass-through of costs to consumers, a move that reduces revenue and raises the financing burden for the budget.
Economists are sceptical that India will meet its fiscal goals given these headwinds. Standard Chartered anticipates a slippage of 0.7-0.9 percentage points of GDP. The government sources, however, indicated there would be no immediate official revision to the deficit target.
One source pointed to political constraints as another factor limiting the scope for raising consumer fuel prices. With four large states holding assembly elections between April 9 and April 29, and three of those states governed by opposition parties, the government is unlikely to allow a sharp rise in pump prices, the source said.
Offsets and priorities
Officials expect some of the additional fiscal burden to be mitigated by better targeting of subsidies and by ministries achieving savings within their schemes. Both sources stressed that capital spending will remain the principal priority of the federal government.
The annual budget envisages a rise in federal capital expenditure to 12.22 trillion rupees ($131.45 billion), roughly 4.4% of GDP, for the current fiscal year. This represents an increase from revised capital spending of 10.96 trillion rupees ($117.90 billion) in 2025/26. The focus on transport infrastructure - notably roads, railways and airports - reflects the government's view that such projects are central to sustaining growth and generating jobs.
The finance ministry did not immediately respond to an emailed request for comment. The two government sources declined to specify the scale or precise composition of any contemplated austerity measures.
Data points preserved
- Fiscal deficit target: 4.3% of GDP for 2026/27, down from 4.4% the prior year.
- Budgeted fertiliser and petroleum subsidies: 1.83 trillion rupees ($19.69 billion) for 2026/27.
- Federal capital spending: 12.22 trillion rupees ($131.45 billion), or about 4.4% of GDP, in the current fiscal year; revised capital spending of 10.96 trillion rupees ($117.90 billion) in 2025/26.
- Exchange rate referenced: $1 = 92.9600 Indian rupees.
- Standard Chartered’s projected slippage: 0.7-0.9 percentage points of GDP.