‘Coming quarters going to be very difficult’: Finance Ministry official explains how Iran US war affects India’s FY26 budget

Finance Ministry warns Iran-US war may strain India’s FY26 budget, with rising subsidies, oil-linked costs, and growing uncertainty putting pressure on fiscal stability.

A detailed medium shot of V. Vualnam, Expenditure Secretary of India, seated at a dark wooden desk in an official Ministry of Finance office. He is wearing glasses and two lanyards (one red, one black/patterned) over a light-blue pinstriped shirt. His hands are resting near papers on the desk. Behind him, a large formal banner prominently displays the text "MINISTRY OF FINANCE, GOVERNMENT OF INDIA" and "Department of Expenditure". To his right, an Indian flag is visible on a stand, and to his left, several official binders with text are on shelves. The lighting is crisp and even.

“Coming quarters very difficult,” says Expenditure Secretary as war-driven price surge threatens capex plans, tax buoyancy, and pushes fertiliser subsidy up by Rs 50,000 crore.

In a notable development, a top official from the ministry of Finance on Friday has issued the department’s first detailed official response on the impact of the ongoing war between Iran, US and Israel on the Indian economy.

Ministry of Finance’s Expenditure Secretary V Vualnam on Friday talked about the increasing cost of the conflict in West Asia that’s being borne by the Indian government and its impact on capex and FY 26 budget announced earlier this year.

As per a report by CNBC, when speaking with reporters about the ongoing geopolitical volatility, Vualnam talked about the surging fiscal uncertainty in today’s environment and warned of mounting sectoral economic stress even as the government stays committed to capital spending.

Flagging near-term pressures which have likely been triggered due to rising import and logistics costs alongside surge in international prices of oil and related products like fertilisers, Vualnam said, “the coming quarters and even days are going to be very difficult, with a lot of stress points,” adding that “it has been a very challenging situation.”

“The Union Budget now feels like a very long time back, though it’s only three months ago,” Vualnam told reporters as per CNBC, expressing how drastically the global economic circumstances have changed following the budget announcement.

While Vualnam maintained that India presently remains on a good footing given the wider geopolitical uncertainty he added that the nation’s ability to predict or prepare for larger upcoming events remains limited. “It is very difficult to know what will unfold even the next day or even in a few hours,” he added.

While the IAS officer acknowledged that the government is managing the evolving geopolitical situation to the best of its capability given the large bracket of economic problems triggered by the war, a stream of “systemic challenges” remain to be addressed.

How Iran-US war has forced India to revise parts of FY26 budget

On the fiscal front, Vualnam highlighted that the stress of the ongoing war on the government treasury extends beyond the popular headlines of LPG and related oil based products.

“Petrol and diesel prices have not been increased, while excise duty has been cut,” the IAS officer said, emphasizing the growing pressure on government revenue. Where sources of earning govt revenue are being reduced at the same time when government expenditure in form of fertiliser and subsidies is moving upwards.

On subsidies, Vualnam flagged a staggering potential increase from the government’s end in fertiliser subsidies. “Fertiliser subsidy may go up by ₹50,000 crore,” he said, adding that the government is presently looking to rework subsidy based budget numbers.

“We are only a month into the new fiscal year. I will not be surprised if FY27 fertiliser subsidy exceeds the Budget estimate by Rs 50,000 crore,” the IAS officer told reporters.

Impact of budget revision on capital expenditure

In his remarks to reporters, Vulham also reiterated that despite a potential increase in welfare and subsidy based spending, capital expenditure remains a priority of the government.

“The government will continue to preserve and focus on capex. We will make full use of the capex outlay and provide sufficient funds despite the stress points,” Vulham told CNBC reporters.

He said the focus will shift towards improving the quality of expenditure and the quality of government spending. Adding to Vulanam’s statements, DIPAM Secretary Arunish Chawla said that India needs to work ‘getting its basics right for the next decade’ calling for a sharper focus on the segments of value-added agriculture and manufacturing.

Is the Goldilocks moment over?

Responding to a question by economist NK Singh on whether the “Goldilocks moment” is over, Vulanam said the situation has “indeed changed,” adding that the buoyancy of gross tax receipts is now a “big question.”

In economics, tax buoyancy measures how responsive tax revenue growth is to changes in a country’s Gross Domestic Product (GDP). Recent statements made by the expenditure secretary in the Ministry of Finance suggest that there is some uncertainty or concern on whether the government’s tax collections will keep pace with economic growth.

This article was first uploaded on May one, twenty twenty-six, at four minutes past ten in the night.