India’s fiscal burden could rise sharply if global crude oil prices remain elevated, with the Centre’s additional annual expenditure potentially increasing by about Rs 3.6 lakh crore if prices sustain above USD 100 per barrel in FY27, according to a report by Elara Securities.
The brokerage noted that persistent geopolitical tensions in West Asia, particularly the ongoing conflict in the region, could keep oil prices elevated and deepen energy challenges for Asian economies, including India.
According to the report, if Brent crude stays near USD 100 per barrel through FY27, India’s current account deficit (CAD) could widen to around 2 per cent of GDP, compared with roughly 1 per cent when crude averages about USD 70 per barrel.
A sustained surge in oil prices may also weigh on the rupee, with the USD–INR exchange rate potentially weakening to around Rs 94–95, the report said.
Fiscal pressure may rise if conflict persists
The analysis highlighted that prolonged disruption in the Strait of Hormuz, a critical global oil transit route, could worsen supply concerns and add pressure on India’s external sector. Delays in restoring energy supplies from affected producers and continued geopolitical uncertainty could further complicate the outlook.
Higher oil prices could also trigger policy responses from the government to shield consumers from fuel inflation. The report expects that the Centre may cut excise duties on petrol and diesel to offset under-recoveries faced by oil marketing companies while also increasing subsidies for liquefied petroleum gas. Such measures would significantly raise the government’s fiscal costs.
The report estimated that every additional month of conflict, with crude hovering around USD 100 per barrel, could add roughly Rs 30,000 crore to the Centre’s fiscal burden, largely due to compensation for oil marketing companies.
While a short-lived disruption may be manageable through existing fiscal buffers, a prolonged period of elevated crude prices could create broader economic pressures. These may include slower economic growth, weaker tax collections and rising fiscal risks, which could eventually force the government to scale back capital expenditure.
Global crude prices were trading near USD 100 per barrel at the time of filing this report. |
