The government will continue with its planned capital expenditure of Rs 12.22 lakh crore in the current financial year to sustain economic growth, even as fiscal pressures rise due to the ongoing West Asia conflict, a senior official said on Friday.
Expenditure Secretary V Vualnam said the coming quarters and the next financial year are likely to face ‘several stress points’, including a possible hit to tax buoyancy following excise duty cuts on petrol and diesel implemented in late March.
“The fiscal stress is very much a reality, but at the same time capital expenditure remains a priority item, which we intend to protect and ensure continues at the budgeted level,” Vualnam said at the ICPP Growth Conference organised by Ashoka University.
He added that key focus areas for FY27 capex would include highways, railways, shipping, ports and urban development. Describing the current global environment as highly uncertain, he said India—being a net importer of petroleum products—faces a particularly challenging situation. However, he noted that the government has been responding proactively with agility to emerging developments.
India’s fiscal discipline, he said, has placed the country in a relatively strong position amid global volatility. “We will remain committed to ensuring that required funds are provided despite the stress points that may arise,” he said.
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The FY27 Budget has set the fiscal deficit target at 4.3 per cent of GDP, though it is now expected to be closer to 4.5 per cent following a revision in nominal GDP under the new series. The government recently reduced excise duties to prevent a sharp rise in petrol and diesel prices amid the West Asia conflict, a move estimated to cost the exchequer around Rs 7,000 crore over 15 days and raising concerns of fiscal slippage.
Since the conflict began on February 28, crude oil prices have surged to a four-year high of USD 126 per barrel, compared to around USD 73 earlier.
“The next few months, including the next quarter and the coming year, are difficult to predict with multiple stress points,” he said, adding that tax buoyancy would also be closely monitored under these conditions.
He noted that India imports around 60 per cent of its LPG requirements, with nearly 90 per cent of that supply passing through the now-closed Strait of Hormuz, making the situation particularly challenging.
The government has also imposed export duties of Rs 23 per litre on diesel and Rs 33 per litre on aviation turbine fuel to ensure adequate domestic supply, with these measures being reviewed every fortnight.
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