NEW DELHI: India’s fiscal deficit in FY27 may overshoot the budgeted target to some extent as the Centre is implementing a series of relief and stabilisation measures to shield citizens, farmers and businesses from the fallout of the escalating West Asia conflict, sources told FE.
However, they stressed, the slippage would remain “manageable” given the government’s relatively stronger fiscal position thanlks to several years of post-pandemic consolidation.
In the Budget, the Centre projected a fiscal deficit of 4.3% of GDP for FY27, which also envisaged a gradual reduction in central government debt to 55.6% of GDP. Those estimates are now expected to be recalibrated as higher subsidy outgo and revenue foregone from tax cuts begin to weigh on government finances, amid rising global crude prices and trade disruptions.
The government has sufficient fiscal headroom to undertake targeted interventions during extraordinary circumstances, the sources added.
The government’s fiscal deficit had touched a record 9.2% of GDP in FY21 during the pandemic. It was subsequently brought down steadily through a fiscal glide path to around 4.4% in FY26, creating room for emergency interventions if needed.
Among the measures announced so far is the Rs 10 per litre cut in central excise duty on petrol and diesel announced on March 26, days after US-Israel conflict with Iran began. The move, aimed at cushioning consumers and containing inflationary pressures amid surging crude oil prices, is estimated to cost the exchequer over Rs 1 lakh crore in FY27.
Officials said the decision was taken to protect households, transporters and businesses from a sharp fuel price shock while also helping oil marketing companies manage losses.
At the same time, the government imposed export duty or cess on petrol, diesel and aviation turbine fuel to discourage exports and ensure sufficient domestic availability of fuels.
The fertiliser subsidy bill is also expected to rise sharply. Sources indicated that the subsidy burden could entail an additional Rs 50,000 crore if elevated global energy and input prices persist in FY27. Higher fertiliser support is seen as critical to protect farmers from imported inflation and ensure adequate nutrient availability during the sowing season.
In the Budget for FY27, the Centre had set aside Rs 1 lakh crore under an Economic Stabilisation Fund, a contingency buffer to respond to supply-chain disruptions, sector-specific stress and unforeseen fiscal shocks. This has strengthened the government’s ability to respond swiftly without derailing broader fiscal management. Similarly, a higher surplus transfer in the range of Rs 2.8-3 lakh crore in FY27 (for the FY26 financial year) compared with Rs 2.69 lakh crore in FY26, could further boost the Centre’s non-tax receipts.
In another major intervention, the government on May 12 launched the Bharat Maritime Insurance Pool backed by a sovereign guarantee of $1.4 billion, or about ₹12,980 crore. The mechanism has been created to ensure uninterrupted maritime insurance coverage for Indian trade and shipping operations at a time when war-risk premiums have surged globally.
To curb pressure on foreign exchange reserves and the rupee, customs duty on imports of precious metals, including gold, silver and platinum, was increased on May 12. Officials said the move was aimed at moderating non-essential imports and conserving foreign exchange for critical imports such as crude oil, fertilisers and industrial inputs.
The government has also introduced several liquidity-support measures for small businesses and exporters affected by disruptions in trade routes and rising working capital stress.
On May 6, the Union Cabinet approved ECLGS 5.0, aimed at facilitating additional credit flow of ₹2.55 lakh crore to MSMEs and other sectors, including ₹5,000 crore earmarked for airlines. The scheme provides 100% guarantee coverage for MSME loans.
In March, customs procedures were simplified to help exporters quickly bring back stranded cargo affected by disruptions in West Asia shipping routes. A special micro credit card facility under the CGTMSE framework was also introduced for Udyam-registered enterprises, allowing access to collateral-free revolving credit of up to ₹5 lakh.
Officials have maintained that India’s response reflected stronger fiscal preparedness built over the past decade through sustained reforms and consolidation efforts.
Source: The Financial Express
