Iran war impact: Fiscal stress yes, but India’s growth story remains intact, says govt source

India is facing fiscal stress due to high global fertiliser, crude oil prices in the wake of the West Asia crisis, but the country’s growth story remains intact, said a top government source. The momentum witnessed in the economy in the last quarter of FY26 continued in the first quarter of the current financial year, the source pointed out.  

The source said most of India’s challenges are external but the domestic economy stays on the path of growth.

“Indian economy is facing challenges, but there is no pressure on economic growth. Domestic economy is making up for the challenges being faced on the external front,” the source said, adding that the India’s condition is far better than China, where consumption is coming down and various segments of the economy are facing sectoral challenges.

The source said there are concerns on multiple fronts such as availability as well as volatility in the prices of commodities such as fertiliser and crude oil, and challenges on the current account front, the domestic economic momentum continues in Q1, FY27, according to high frequency data.

How deep is the stress?

That said the fiscal strain is quite deep. Till date, the government has supported PSU oil marketing companies with Rs 1.23 lakh crore to offset under recoveries caused due to no increase in bunk prices for a period of 78 days despite high crude oil prices. This is inclusive of the excise duty cut announced by the government earlier.

Also, fertiliser ministry has sought to double the fertiliser subsidy for the current fiscal from ₹1.71 lakh crore estimated in the budget, as the West Asia conflict has led to a sharp increase in the cost of the imported fertilizer, the source pointed out.

This essentially means that the subsidy budgeted for the entire financial year may get consumed in the first quarter itself. In all, considering both fertilizer and compensation to the OMCs, the fiscal hit on account of the war is to the tune of Rs 3 lakh crore till date in the current financial year.

The source pointed out that while fertilizer prices have gone up in the global market, the supply is also constrained.

What will the govt do?

Being asked whether the government will seek more funds in the supplementary demand for grants, the source said no additional funds will be sought in the upcoming monsoon session of the parliament.

“This year’s budget was prepared taking in to consideration a lot of contingencies. We will assess the situation in mid July. We will not realign the spending as of now. We will do it sometime in October-November. Government’s capital expenditure plan will remain intact,” the source pointed out.