Energy Price Surge Could Trigger Fiscal Risks For India In FY27: ICRA

(MENAFN- KNN India) New Delhi, Mar 27 (KNN) A sharp rise in global crude oil and natural gas prices due to the ongoing West Asia conflict could complicate India's fiscal position in FY2026–27, potentially increasing subsidy burdens and pressuring government revenues, ratings agency ICRA said in a report on Thursday.

According to ICRA, crude oil prices have more than doubled from pre-crisis levels, driven by supply disruptions and logistical challenges. Elevated energy costs are expected to increase the government's expenditure on fertiliser and LPG subsidies, while also affecting corporate tax collections, refining margins, and dividend receipts.

The agency noted that any reduction in excise duties to compensate oil marketing companies could further weigh on revenue.

Buffer Measures Under Consideration

To manage the potential fiscal strain, ICRA indicated that the government may utilise the Economic Stabilisation Fund (ESF) to absorb part of the shock.

Additional measures could include front-loading subsidy payments in the first half of FY27 and seeking supplementary grants later in the year, partly offset by routine expenditure savings.

These buffers may help limit a significant deviation from the fiscal deficit target of 4.5 per cent of GDP. However, ICRA cautioned that risks remain tilted to the upside if high energy prices persist due to a prolonged conflict.

Sectoral Implications

The surge in energy prices is expected to raise input and logistics costs for industries, particularly fertilisers and petroleum. While downstream companies may see reduced refining margins, upstream oil firms could benefit from higher prices.

The conflict has also disrupted supplies of key inputs, including those used in fertiliser production, adding to cost pressures across sectors.

Additional Cushion Factors

ICRA pointed to potential support from higher small savings collections and average annual expenditure savings of around Rs 1.8 trillion in recent years, which could provide some fiscal cushion.

However, the agency warned that sustained volatility in global energy markets could pose a significant challenge to maintaining fiscal discipline in FY27.

(KNN Bureau)

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