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Informist, Tuesday, Aug. 4, 2026

 

NEW DELHI – The government can miss the fiscal deficit target for 2026-27 (Apr-Mar) by 20 basis points if crude oil prices stay over $90 per barrel sustainably, Emkay Global Financial Services Ltd. said in a report. "..if global oil market imbalances intensify and Brent sustains above $90/bbl, the fiscal cushion would narrow materially, raising the possibility of a fiscal slippage to the tune of 0.2% of GDP," economists at Emkay Global said. 

 

Crude oil prices have been volatile in July and have risen over the past three weeks, breaching even $100 per barrel with flare-ups in the West Asia conflict. Brent crude oil price rose overnight last week after the US military said it had intercepted multiple missiles launched by Iran, while Tehran's military stopped vessels from passing through the Strait of Hormuz. Currently, Brent crude oil is trading around $85 per barrel. 

 

In the latest Monthly Economic Review from the finance ministry, the government also sounded an alarm about the high crude oil prices. According to the ministry, sustainably high crude oil prices can put pressure on both the fiscal deficit and the current account deficit. The "persistent stand-off in the Gulf region (West Asia)" also poses upside risks to inflation and downside risks to growth, the ministry said in its Monthly Economic Review for July.

 

As such, economists at Emkay Global said that if oil prices do not stay over $90/barrel sustainably, the Centre should be able to maintain the budgeted fiscal deficit target of 4.3% of GDP. The Union Budget had pegged the fiscal deficit for FY27 at 4.3% of GDP, or INR 16.96 trillion. The fiscal deficit target for FY27 will, however, be 4.5% of GDP, based on the downward revision in India's nominal GDP in the new series with FY23 as the base year. 

 

The government's finances have been under pressure this year, with some economists expecting the Centre to miss its fiscal deficit target. The government's fiscal deficit fell sharply in June on the back of robust net tax collection and a fall in revenue expenditure. The fall in fiscal deficit in June brought the deficit for Apr-Jun to INR 3.08 trillion, up 9.7% on year. In Apr-May, the fiscal deficit was 12 times the year-ago figure.

 

Higher energy and commodity prices will increase India's import bill as well as its subsidy expenses. According to Emkay Global, the fiscal impact of excise duty cuts and higher fertiliser subsidies is likely to be offset by a combination of a drawdown from the Economic Stabilisation Fund, modest rationalisation of non-core capex and revenue expenditure, a slightly higher-than-budgeted surplus transfer from the Reserve Bank of India, and stronger import duty collections from precious metals. The Economic Stabilisation Fund was set up earlier in 2026 with an INR-1-trillion corpus to meet expenditure needs arising from uncertain geopolitical conditions. 

 

On states' fiscal conditions, the report said states have had poor revenue collection so far, and this is expected to improve in Oct-Mar, which is a seasonally stronger period for states' revenue. Additionally, devolution from the Centre will improve as the extra instalments are paid out, it said. Despite these improvements in revenue collections, Emkay Global said that states are expected to undershoot optimistic revenue targets for FY27 across both states' own revenue streams and central transfers.

 

While states will control expenditure to meet deficit targets, revenue expenditure will be stickier, the report said. Capital expenditure, on other hand, will also remain robust, aided by the Centre's 50-year interest-free loans for capex. As a result, economists at Emkay Global expect states to miss their fiscal deficit target of 3.1% by 20 bps to 3.1%.   End

 

US$1 = INR 95.38

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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