New Delhi: India will continue with prudent fiscal management despite uncertainty over oil and fertiliser prices, Chief Economic Adviser V. Anantha Nageswaran said on Monday, reaffirming the government's commitment to fiscal consolidation.
Nageswaran's comments come as India faces pressure from higher global energy prices and continuing geopolitical tensions in West Asia. His remarks indicate that the government remains committed to its budgetary fiscal deficit target.
India has set a fiscal deficit target of 4.3 percent of gross domestic product for the financial year ending March 31, 2027. The target is equivalent to about ₹16.96 lakh crore.
The latest government figures show that the central government's fiscal deficit stood at ₹4.55 lakh crore during the first four months of the financial year, from April to July. The deficit accounted for 26.8 percent of the full year target, compared with 29.9 percent of the previous year's budget estimate during the same period.
Government receipts have provided some support to the fiscal position. Net tax receipts during April to July stood at about ₹8.45 lakh crore, while non tax revenue was around ₹4.23 lakh crore. Total government expenditure reached ₹17.62 lakh crore during the period.
Capital spending also remained strong. The government spent about ₹4.51 lakh crore on capital expenditure during the first four months, compared with about ₹3.5 lakh crore during the corresponding period last year. The higher capital spending shows that the government has continued to maintain investment expenditure during the early months of the financial year.
The latest figures show that the fiscal deficit was at 26.8 percent of the full year target at the end of July. However, the figures cover only the first four months of the financial year and do not determine the final deficit for March 2027.
A major uncertainty for the government is the cost of energy and other imported commodities. Global oil prices have risen sharply amid the continuing conflict and disruption in West Asia. Higher crude prices can increase India's import bill and put pressure on inflation, while also creating challenges for government finances.
Fertiliser prices are another concern. Higher international prices can increase the cost of supporting farmers if the government absorbs part of the increase through subsidies.
There had earlier been concerns that India's fiscal deficit could rise towards 5 percent of GDP during the current financial year. Nageswaran later expressed confidence that the government could remain closer to its 4.3 percent target, citing oil prices, lower fertiliser prices and stronger non tax and non debt capital receipts.
The situation has since become more uncertain because of the rise in energy prices. Despite this, the government's latest position is that fiscal consolidation will continue.
India's wider economic performance has also provided some support. The economy grew 7.8 percent year on year during the April to June quarter, according to government data. The latest growth figures have added to expectations that the economy can withstand some external pressures.
Moody's recently raised its forecast for India's real economic growth in the current financial year to 7 percent from 6 percent. The agency said India's economy had shown resilience despite the conflict in the Middle East.
At the same time, Moody's warned that high energy prices and food price pressures could create risks for inflation, consumption and economic growth. It also said higher energy costs could increase government subsidy spending and require additional government support, potentially making fiscal consolidation more difficult.
India is also pursuing a longer term reduction in government debt. The government has set an objective of bringing central government debt to around 50 percent, plus or minus one percentage point, of GDP by 2030 to 2031.
The latest fiscal position therefore presents a mixed picture. Government revenues and economic growth have remained supportive, while capital spending has increased. At the same time, higher energy costs and uncertainty over fertiliser prices could create additional pressure if they persist.
The 4.3 percent fiscal deficit target remains unchanged in the current budget. Nageswaran's statement represents a reaffirmation of the existing fiscal strategy rather than a new budget measure. The ability to maintain that strategy will depend partly on how long elevated energy prices remain and how the wider global economic situation develops.