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Informist, Friday, May 1, 2026

NEW DELHI – The government will continue to focus on capital expenditure despite the limited fiscal space to keep up the growth momentum in the Indian economy amid the current global conditions, Expenditure Secretary Vumlunmang Vualnam said Friday. The government will try to keep the capital expenditure for 2026-27 (Apr-Mar) around the Budgeted level of INR 12.22 trillion despite the potential stress on the government's fiscal space due to rising expenditures from the war in West Asia, he said. 

"The fiscal stress is indeed very much a reality but at the same time the priority sector capex would really be a priority item which we would like to preserve and ensure that it continues at the budgeted level," Vualnam said. The government will focus on the priority areas of capital expenditure like infrastructure, roads, railways, shipping, urban sector and others to maintain resilience in the domestic economy. "We will on our part be committed to see that the required funds are provided in spite of all the whatever stress points that may come up," he said while speaking at Isaac Centre of Public Policy's event.

While the Budget pegged FY27 fiscal deficit at 4.3% of GDP, the government now sees it at 4.5% of the GDP, following a downward revision in India's nominal GDP under the new series. The ongoing war, which has already prompted the government to cut excise duties to prevent the pass-through of higher fuel costs to consumers, poses a risk of fiscal slippage, with pressure building up on government revenues and a potential rise in expenditure. 

The war in West Asia, which began on Feb. 28, has increased India's exposure to energy and price shocks, given New Delhi's dependence on the region for crude oil and liquefied petroleum gas supplies. Crude oil prices, a key determinant of government subsidies, have soared since the war broke out, rising to a four-year high of $126 per barrel on Thursday from sub-$73 level before the war.    

According to the secretary, the government's focus on fiscal prudence and focus on the important expenditure items has aided the government counter the current exogenous risks. "Having said that, the next few months, the next quarter and the coming year are indeed very difficult to envisage, lots of possible stress points," he said. Vualnam said the government will keep an eye on tax buoyancy, lack of which can further squeeze fiscal space, in the current economic condition.

India is currently facing one of the worst energy crises in decades with a huge supply-side constraints on its liquefied petroleum gas imports, India's primary cooking gas. India imports 60% of its LPG usage and of that, 90% flows through the now closed Strait of Hormuz. Acknowledging this, the secretary said, "It has been a very challenging situation." 

While the government has been proactive in trying to tackle each situation with agility, there are also "systemic constraints where you cannot really tackle or wipe away all the impacts which are there," he said. "For instance, beyond LPG, the petrol price, diesel price, the excise duties have been cut but that again has an impact," he said. 

The government has taken a slew of measures to mitigate the impact of the war in West Asia, including cutting excise duty on diesel and petrol by INR 10 per litre to help oil marketing companies absorb the rise in crude oil prices. The government has also levied an export duty of INR 21.50 per litre on diesel and INR 29.50 per litre on aviation turbine fuel to ensure adequate domestic availability of the fuel. These duty changes are being reviewed by the Centre every fortnight. 

The government is likely to incur a fortnightly revenue loss of INR 70 billion due to the cut in excise duty on petrol and diesel. Economists said the net revenue impact of the duties could be around INR 1 trillion. Madhavi Arora, chief economist at Emkay Global Financial Services, said the net fiscal cost of the excise duty cut and export duty would be INR 800 billion, while State Bank of India Group Chief Economic Adviser Soumya Kanti Ghosh put it at INR 1.11 trillion.

Vualnam said that the government was able to take these actions despite the stress due to discipline in the Budget-making process. "...there is nothing to hide, everything is revealed, off budget borrowings are really cut down, not just central government, in fact with all the state governments, those are aspects that we are encouraging them, checking them and trying to see that all public accounts are on a very transparent footing, that is the best way to do it," he said. 

Beyond the budget ecosystem, the government is also working hard to ensure procedures for start-ups are simplified and eased to create a healthy ecosystem. The government is also focused on spending on research and development, he said.  End

Reported by Priyasmita Dutta and Sagar Sen

Edited by Akul Nishant Akhoury

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