New Delhi: The government’s subsidy spending has already reached 91% of the revised estimate for financial year 2026 in the first 11 months, highlighting sustained strain from welfare commitments that is unlikely to ease soon, as the West Asia war fuels cost pressures in the economy.
According to the Department of Expenditure data, reviewed by Mint, total expenditure on major subsidies including food and fertilizers stood at ₹3.89 trillion during April–February, against the revised estimate of ₹4.29 trillion. The department is still collating the final month’s figure.
The subsidy spending is higher than ₹3.63 trillion recorded in the same period of FY25.
Despite higher subsidy spending, the fiscal deficit moderated to ₹12.52 trillion during April–February FY26, lower than the ₹13.46 trillion in the same period last year, the ministry data showed. The narrowing gap indicates that stronger revenue inflows have partly offset expenditure pressures.
This comes in the backdrop of and due to the West Asia war beginning to strain the government’s fiscal calculations.
Queries sent to the spokesperson of the ministry of finance remained unanswered till press time.
Analysts said the war-induced stress could force the government to raise subsidies.
“The current scenario indicates that the FY26 revised estimates for subsidies may require a further upward revision. Moreover, FY27 could require a relatively larger allocation for major subsidies in the Government of India’s budget, which may result in a higher fiscal deficit than what has been projected in the FY27 Budget,” said D.K. Srivastava, chief policy adviser, EY India.
The composition of spending shows varied trends across subsidy segments. Food subsidy, the largest component, stood at ₹1.92 trillion, or 85% of the revised estimate of ₹2.28 trillion, compared with ₹1.86 trillion in the corresponding period of FY25.
However, the urea subsidy has already breached its annual target, reaching ₹1.28 trillion, or 101% of the revised estimates, and higher than the ₹1.16 trillion recorded a year ago. Nutrient-based fertilizer subsidy also remained elevated at ₹59,941 crore, nearly exhausting the annual allocation and higher than ₹49,523 crore in the year-ago period.
In contrast, petroleum subsidy remained relatively contained at ₹8,823 crore, lower than ₹11,081 crore in the corresponding period last year, the ministry data showed.
Economists said that the latest subsidy numbers underscore the government’s challenge of balancing welfare commitments with fiscal discipline, particularly at a time when rising fertilizer costs and global uncertainties are putting pressure on public finances.
While relatively lower petroleum subsidy has provided some relief to the exchequer, rising fertilizer subsidies, , continue to remain vulnerable to geopolitical tensions, imported input costs, and global commodity price volatility. Sustaining high capital expenditure alongside elevated subsidy commitments will remain a key fiscal challenge for the government, they said.
“As the data show that subsidy spending has increased, it is a matter of concern as it could put pressure on the public exchequer. It may also have an adverse impact on fiscal deficit…,” said Dharmveer, assistant professor, department of economics, Delhi School of Economics.
Fiscal deficit is the excess of expenditure over revenue receipt that’s financed through market borrowing.
Rising subsidies are a negative sign because they limit the government’s fiscal flexibility. Higher spending on subsidies can restrict expenditure on other welfare and development schemes, as more resources are diverted towards subsidy support, he added.
The food subsidy is largely driven by the government’s free foodgrain programme under the National Food Security Act (NFSA) and Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), through which subsidized or free wheat and rice are distributed to nearly 810 million beneficiaries via the public distribution system.
The food subsidy bill also includes support for procurement, storage and distribution of foodgrains by the Food Corp. of India, decentralized procurement by states, and allocations under welfare schemes such as PM Poshan (Pradhan Mantri Poshan Shakti Nirman), Integrated Child Development Services (ICDS) nutrition programmes, and other welfare institutions.
Under the nutrient-based subsidy regime, the government offers fixed per-tonne support on phosphatic and potassic fertilizers, including diammonium phosphate (DAP) and muriate of potash (MOP), to keep them affordable for farmers.
The petroleum subsidy mainly includes support for schemes such as liquefied petroleum gas subsidy under Pradhan Mantri Ujjwala Yojana and targeted assistance to oil marketing companies to cushion the impact of volatile global crude oil prices on domestic consumers. The lower utilization indicates relatively stable domestic fuel pricing and calibrated government intervention compared to the previous year.