Despite mounting pressure from surging global commodity prices that could nearly double the Centre’s fertiliser subsidy bill to Rs 3.4 lakh crore and necessitate support of Rs 1.23 lakh crore for oil marketing companies, the government remains firmly in control of the fiscal situation and sees little risk to India’s growth momentum, senior officials said.
Even as geopolitical tensions in West Asia and global trade uncertainties cloud the external environment, officials said the economy continues to be supported by resilient domestic demand and a strong underlying growth trajectory.
According to sources, the Union Budget for FY27 had already built in a degree of global uncertainty — now a recurring feature of the economic landscape — limiting the need for additional borrowing or supplementary demands for grants during the upcoming Monsoon Session of Parliament.
The fiscal deficit target of 4.3% of the GDP, they stressed, remains unchanged.
The government is simultaneously stepping up efforts to mobilise non-tax revenues through disinvestment and asset monetisation to offset part of the fiscal strain from higher subsidy commitments.
A senior official said the fertiliser department has projected subsidy requirements of up to Rs 3.4 lakh crore this fiscal year, compared with the budgeted Rs 1.71 lakh crore, as global fertiliser prices remain elevated and supplies have become increasingly constrained by disruptions in the Strait of Hormuz and damage to production facilities amid the US-Israel-Iran war which has crossed its 100th day.
To reduce dependence on imports, the government has ensured adequate LNG supplies to boost domestic urea production, which could partly soften the subsidy burden. The retail price of urea has remained unchanged at Rs 266.5 per 45-kg bag since 2018, even as the subsidy component has risen to more than Rs 4,000 per bag.
Similarly, the retail price of DAP has been maintained at Rs 1,350 per 50-kg bag since the pandemic despite a sharp increase in subsidy support. To support oil marketing companies, which were unable to fully pass on higher crude prices to consumers for nearly 78 days, government measures — including a Rs 10-per-litre reduction in excise duty on petrol and diesel — could cost the exchequer about Rs 1.23 lakh crore, sources said.
However, officials maintained that the government’s fiscal buffers remain adequate. The Rs 1-lakh-crore Economic Stabilisation Fund created last year to address supply-chain disruptions and unexpected shocks has strengthened the Centre’s ability to respond to emerging risks.
The Rs 10,000-crore aviation turbine fuel (ATF) price stabilisation fund for airlines was created from this corpus.
On the financing side, the government is also seeking to attract greater foreign capital. Last week, in coordination with the Reserve Bank of India, it announced tax exemptions on interest income and capital gains from investments in government securities by foreign investors.
Officials said the move could improve India’s prospects of inclusion in the Bloomberg Aggregate Bond Index, potentially bringing in substantial passive inflows and deepening the domestic bond market. Additional measures to boost foreign direct investment are also under consideration, they said, while reiterating that there is no proposal to curb capital outflows.
The Centre has accelerated minority stake sales in state-run companies and expects proceeds from disinvestment and asset monetisation to exceed the FY27 target of Rs 80,000 crore. “DIPAM (Department of Investment and Public Asset Management) and DPE (Department of Public Enterprises) have a year-long pipeline and also a medium-term outlook of disinvestment and asset monetisation.
I would hope the budgeted Rs 80,000 crore under this head exceeds BE and both the departments are working on it,” a source said, adding that the strategic sale of IDBI Bank is expected to move forward.
Officials said the strong growth momentum seen in the March quarter of FY26 has continued into the first quarter of FY27, with no adverse impact on remittance flows so far. The government is expected to reassess macroeconomic trends once the April-June quarter data and the impact of El Niño on the monsoon become clearer, likely in July.
Spending priorities will also be reviewed during the revised estimates exercise later this year. Even so, officials maintained that the economy remains well positioned to weather current challenges without any meaningful hit to growth. Despite disruptions arising from US tariff actions, India’s economy expanded by 7.7% in FY26, and policymakers remain confident that the reform agenda and growth momentum will remain on track.