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Ongoing West Asia conflict likely to pose challenge to India's fiscal position by FY27: ICRA
Mar-27-2026

Ratings agency ICRA in its latest report has said that ongoing geopolitical conflict in the West Asia region has triggered a severe surge in global crude oil and natural gas prices, posing a challenge to India's fiscal position by FY2027. It warned that global crude prices have more than doubled compared to pre-crisis levels, raising input and logistics costs and disrupting supplies, including key fertiliser inputs. 

The agency said elevated energy prices could lift the government's fertiliser and LPG subsidy outgo while weighing on corporate tax collections, refining margins and dividend receipts. It said this complicates the government’s budget math for FY27, vide a potential rise in the fertiliser and fuel subsidy burden, lower excise collections in the event of a cut in excise duty to compensate Oil Marketing Companies (OMCs) for marketing losses and an adverse impact on corporate tax revenues.   

ICRA said the government may use the Economic Stabilisation Fund (ESF) to manage fiscal shocks from external crises like the West Asia conflict, along with measures such as front-loading subsidy payments and seeking supplementary grants later in the year. It said while these buffers could help limit any major slippage from the fiscal deficit target of 4.5 per cent of GDP, risks remain skewed to the upside if elevated energy prices persist due to a prolonged conflict. Besides, it said the government can front-load subsidy pay-outs in H1 FY27 and announce supplementary demand for grants (SDG) later, if needed, that could be partly absorbed by the typical expenditure savings seen in recent years.

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