India: Cheaper Oil supports FY27 deficit target – Standard Chartered

Standard Chartered economists Anubhuti Sahay and Saurav Anand assess India’s FY27 fiscal deficit outlook, highlighting how lower crude Oil prices reduce the risk of fiscal slippage to about 0.2-0.3% of Gross Domestic Product (GDP) versus 0.5% earlier. They cite the Economic Stabilisation Fund, reduced subsidy burden, partial excise duty rollback, and faster divestment as key supports, while noting remaining but manageable risks.

Lower slippage risk with cheaper Oil

"We think the risk of a slippage in the central government’s FY27 (year ending March 2027) fiscal deficit has eased to 0.2-0.3% of GDP, given the sharp fall in crude oil prices; we had previously estimated slippage risk at 0.5% of GDP (see At a Glance – India – Is the tide turning?). The central government has targeted the FY27 fiscal deficit at 4.3% of GDP."

"Likely lower losses from the excise duty cut, a lower subsidy burden and a faster pace of divestment, along with the budgeted Economic Stabilisation Fund (ESF), are the key reasons we see a reduced risk of fiscal slippage. The ESF was established in the FY27 budget to act as a buffer to meet any unexpected increase in expenditure."

"First, we have lowered our FY27 crude oil price assumption to USD 85/bbl from USD 95/bbl previously. We believe lower crude oil prices will likely allow the government to reverse 40-50% of the INR 10/litre excise duty cut on diesel and gasoline announced in March 2026, likely in H2-FY27."

"We also expect retail diesel and gasoline prices to be reduced by INR 2-3/litre in H2. Stable retail fuel prices in H1 are likely to give oil marketing companies room to recover most of the heavy losses incurred in Q1."

"While fiscal slippage risks remain, we think they are manageable. First, crude oil prices could undershoot our assumption – ICB prices are currently trading around USD 70/bbl."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)