Centre may not meet FY27 fiscal deficit target of 4.3% due to high fertilizer, petroleum subsidy: EY

EY today said India may not be able to meet the fiscal deficit target of 4.3% in the current financial year due to higher payouts on fertilizer, food, and petroleum subsidies in the wake of the West Asia crisis. It said both fiscal and monetary policy options may remain constrained in the short run.

“In FY27, the government of India’s (GoI’s) fiscal deficit may exceed the budget estimates due to the compulsion of providing higher food, fertilizer and petroleum subsidies, since the upsurge in the price of the Indian crude basket may not be fully passed on to consumers,” EY said in its economy watch for the month of May.

On the monetary side, given the current pressure on inflation, policy rates may eventually have to be increased, EY said. “Headline WPI inflation accelerated to 8.3% in April 2026 from 3.9% in March 2026, reflecting a broad-based surge in wholesale price momentum, driven primarily by energy-related inputs and pass-through into manufactured products, signalling a shift from benign to elevated cost conditions,” it added.  

“However, CPI inflation remained relatively contained at 3.5% in April 2026 compared to 3.4% in March 2026, reflecting limited pass through of higher global crude prices to retail fuel prices,” it said.

EY however, pointed out that since the increase in CPI inflation is cost driven, adjustments in repo rate may have limited effect in containing inflation. “Any rate revision undertaken by the RBI is likely to be data driven. In view of the constraints on adopting stimulative fiscal or monetary policies, there may be a need to examine options for sectoral interventions,” it said.

EY said the current account deficit may come closer to 2% of GDP in FY27. “The global slowdown and the crude price upsurge are expected to have a direct bearing on India’s current account deficit (CAD). Having deteriorated to 2% of GDP in FY23, India’s CAD as a percentage of GDP improved to 0.6% in FY25. In the first three quarters of FY26, it averaged 1.0%. Further deterioration is expected in the final quarter of FY26 although it may still remain below 2% of GDP for the full year. Given the sharp rise in crude oil prices, globally and in terms of India’s crude basket, it may come close to 2% of GDP in FY27,” it said.