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Informist, Saturday, May 2, 2026

 

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--CEA: Finding way for burden-sharing between fiscal policy, inflation
--CONTEXT: CEA Nageswaran speaking at Isaac Centre for Public Policy event
--CEA: Conflict-induced fert shock gives opportunity for agri reforms
--CEA Nageswaran: India needs to prioritise building strategic buffers
--CEA Nageswaran: West Asia war energy shock bigger than other global shocks
--CEA Nageswaran: West Asia war to lead to energy price, supply shock
--CEA Nageswaran: Fisc gap aim under strain amid high fertiliser, oil prices
--CEA Nageswaran: See remittance shock due to West Asia war
--CEA Nageswaran: West Asia war to disrupt commodity supplies

 

NEW DELHI – The conflict in West Asia is likely to put pressure on the government's finances and make it difficult to meet the fiscal deficit target for the financial year 2026-27 (Apr-Mar) because of higher fertiliser and fuel costs. "We have brought down our gross fiscal deficit ratio to 4.4% as of last year, and FY27 we budgeted 4.3%. Naturally, this number will be under challenge given what is happening to fertiliser prices, petroleum product prices," the government's Chief Economic Adviser V. Anantha Nageswaran said Saturday.

 

Nageswaran said India is better prepared than many other countries "because we have some fiscal leeway" though the crisis is a challenging one as it affects the country in multiple ways. "We are facing it after having consolidated quite credibly to the extent that we got three credit rating upgrades last year," the chief economic adviser said. He was speaking at an event at the Isaac Centre of Public Policy here.

 

Nageswaran warned that the West Asia war would lead to a disruption in supply of many commodities like fertilisers. It would also cause price and supply shocks in the energy sector, he said. Depending on when economic activity in the Persian Gulf region returns to normal, he said, inward remittances will also be affected.

 

The war, which began Feb. 28, has increased India's exposure to energy and price shocks, given its dependence on the region for crude oil and liquefied petroleum gas supplies. Crude oil prices have shot up since the war broke out, rising to a four-year high of $126 per barrel Thursday from a sub-$73 level before the war. "The higher import prices, the lower remittances, will have implications for current account deficit, which was very tame in FY26, estimated to be less than 1% of GDP," Nageswaran said.

 

The fertiliser sector depends a lot on imported LPG, and as the naval blockade around the Strait of Hormuz continues, the country may face a shortage of energy supply, reducing throughput. Government officials recently indicated that continuation of the conflict may push up India's fertiliser subsidy by an additional INR 500 billion from INR 1.71 trillion projected in the Budget for FY27.

 

Nageswaran said there is a certain pass-through that is already happening with higher input costs being passed on to end-users. Referring to the increase in commercial LPG rates and the introduction of export duties on diesel and jet fuel, he said, "We are coming around to arriving at a certain modus vivendi with respect to burden-sharing between the fiscal policy side, inflation, households, and the oil marketing companies. So it has to be a balancing act."

 

Nageswaran also pitched for India to create strategic buffers in the face of the "most difficult" energy shock the country is facing. "Conflict-induced fertiliser shock presents an opportunity for agriculture reforms and to turn it into an engine of growth," he said.  End

 

US$1 = INR 94.91

 

Reported by Sagar Sen and Pratiksha

Edited by Rajeev Pai

 

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