India may allow its fiscal deficit to widen more than planned this financial year as the ongoing Iran war pushes up oil prices, increases subsidy costs and puts fresh pressure on government finances, reported Bloomberg.
Citing an official familiar with the matter, Bloomberg reported that the government is willing to let the budget deficit rise by as much as 50 basis points to 4.8% of GDP, compared with the 4.3% target set for the financial year that began on April 1.
The possible move highlights the financial challenges India faces as it deals with higher energy costs caused by disruptions in global oil supply.
India, the world’s third-largest oil importer and consumer, depends on imports for around 90% of its needs, making it among the countries most vulnerable to prolonged disruptions linked to the Iran conflict.
The closure of the , a key global oil shipping route, has disrupted supply chains and pushed crude oil prices higher.
The increase in global oil prices has forced state-owned fuel retailers to raise and prices by about 8%. The government has also reduced subsidies on cooking gas cylinders for households as it tries to manage the growing financial burden.
Higher crude prices are also expected to increase fertiliser subsidy requirements. A government official had earlier said that the fertiliser subsidy bill could rise by around 20% during the current financial year.
A fiscal deficit is the gap between the government’s total spending and the revenue it earns. When the government spends more than it receives, it has to borrow money to bridge that gap.
A wider fiscal deficit can mean higher borrowing requirements and could affect the government’s plans for managing public finances.
However, authorities are keeping their options open and are expected to reassess the fiscal situation later this year when there is more clarity on non-tax revenue collections and the actual subsidy burden, Bloomberg News reported.
The report added that the government is also considering possible expenditure cuts across ministries to prevent the fiscal deficit from rising further.
For now, no final decision has been taken, and the government will review the situation based on developments in oil prices, subsidy requirements and revenue trends.
The possibility of a wider fiscal deficit reflects how geopolitical tensions far away from India can have a direct impact on the country’s finances through higher energy costs and subsidy spending.