Industry Odisha Bureau, Oct 25: Costlier oil threatens growth, prices and subsidy bills. Yet buoyant taxes and a bumper RBI payout offer relief. Fiscal buffers may also keep the deficit close to target.
Brent crude is edging towards $120 a barrel. Rising Saudi-Houthi tensions have rattled global energy markets. For India, which imports most of its oil, the timing is difficult.
Costlier crude feeds into transport, manufacturing and household fuel bills. It also squeezes public finances through larger subsidies. D K Srivastava, Chief Policy Advisor at EY India, expects prices to stay elevated. He sees a range of $115 to $120 a barrel for some time.
The RBI built its second-half projections on crude at $95 a barrel. Srivastava examined a sustained $20 rise above that baseline. In that scenario, real GDP growth for FY2026–27 could ease from 7.1% to 7%. CPI inflation could climb from 5.2% to 5.7%. These are scenario estimates, not official RBI revisions.
Higher inflation does raise nominal GDP, even as real output slows. Nominal growth measures the economy before adjusting for price changes. Srivastava notes this could lift tax revenues if buoyancy holds.
The sharper pressure lies on the spending side. The Union Budget set aside ₹1.70 lakh crore for fertiliser subsidies. Controller General of Accounts data show outgo already crossed ₹1.03 lakh crore. That spending covers only the first five months of the year. A senior official has reportedly warned the full-year bill may cross ₹3 lakh crore. It could even touch ₹3.5 lakh crore, though that remains a projection.
Pricier energy inputs push the fertiliser bill higher. Oil companies still under-recover about ₹327 per LPG cylinder despite price revisions.
Sunil Kumar Sinha is Professor of Economics at the Institute for Development and Communication. He estimates higher fertiliser subsidies could widen the deficit by 0.4–0.5 percentage points of GDP.
Several cushions could soften that blow. The RBI has transferred a bumper dividend of ₹2.87 lakh crore. This annual transfer significantly lifts non-tax revenue. Tax collections grew nearly 13% by mid-September 2026. Tax gains are more recurring in nature than dividend windfalls.
Disinvestment and asset monetisation have often missed targets in past years. This year, nearly 70% of the full-year target was reportedly met by end-August. Such proceeds are one-off, but they arrive at a useful moment. A ₹1 lakh crore economic stabilisation fund offers further protection. It was created specifically to absorb global macroeconomic shocks. That fund is contingent support rather than regular revenue.
Sinha therefore believes the 4.3% fiscal deficit target remains achievable. Any slippage, he says, should not exceed 4.4–4.5% of GDP. The gross subsidy shock and the net deficit impact are thus different measures.
D K Pant, Chief Economist at India Ratings & Research, is cautiously optimistic. He acknowledges under-recoveries on petrol, diesel and LPG, plus higher fertiliser spending. Barring central excise, he expects tax and non-tax receipts to hold up well. Disinvestment and asset monetisation could also beat budget estimates. He does not expect the overall fiscal arithmetic to shift significantly.
Much now depends on how long crude stays elevated. If revenues hold firm, the shock looks manageable. A prolonged spike, however, would test those buffers more severely.
