Elevated global crude oil and natural gas prices amid ongoing geopolitical developments in West Asia could influence India’s fiscal position for FY26-27, according to a report by ICRA. 

The report stated that the recent surge in energy prices, driven by geopolitical tensions, has added volatility to global markets and may have implications for India’s fiscal calculations. Even if conditions stabilise, energy prices are likely to remain above earlier budgeted assumptions, potentially necessitating fiscal adjustments.

Higher crude and gas prices may increase subsidy requirements 

According to ICRA, higher crude and gas prices could increase subsidy requirements, particularly for fertilisers and liquefied petroleum gas (LPG). Surging prices may also impact government revenues, including a possible moderation in excise duty collections and corporate tax inflows. 

The agency further highlighted that global supply disruptions and logistical challenges have contributed to the rise in energy prices that could affect sectors such as petroleum and fertilisers. These trends are likely to influence both expenditure requirements and revenue projections for the upcoming fiscal year. 

Buffers to cushion impact 

ICRA noted that several buffers are available to manage potential fiscal pressures. The Economic Stabilisation Fund, along with expected expenditure savings and flexibility through supplementary demand for grants, could help absorb part of the impact. 

It said that expenditure savings seen in recent years, along with the potential carry-forward of higher small savings collections, may provide additional fiscal space. Lower redemptions and adjustments in market borrowings could also support fiscal management. 

According to the report, these buffers may help contain any significant deviation from the fiscal deficit target of 4.5% of GDP for FY26-27. However, the extent of the impact will depend on how long energy prices remain elevated. 

As per the report, fiscal management is likely to involve calibrated measures, including the timing of subsidy payouts and the use of available fiscal tools, to navigate evolving global conditions. 

Overall, the report presents a balanced view, indicating that while elevated energy prices remain a key risk to fiscal outcomes, the presence of multiple buffers provides resilience in managing potential pressures.