Key facts
- India's fiscal policy is shifting to support domestic growth and economic resilience amid global uncertainties.
- The West Asia conflict is a key driver for this policy evolution, prompting a move to long-term strategies.
- Measures include managing energy and food costs, rationalizing cooking gas, and expanding subsidies.
- An Economic Stabilization Fund has been created for oil hedging.
- S&P Global forecasts a potential rise in India's central government debt-to-GDP ratio to 57.5%.
India's fiscal policy is undergoing a significant shift to support domestic growth and strengthen economic resilience amid rising global uncertainties, particularly those stemming from the West Asia conflict, according to a report by S&P Global.
The report highlights that prolonged geopolitical tensions are prompting India to move beyond short-term crisis management towards medium- to long-term strategies aimed at safeguarding growth, ensuring energy security, and enhancing economic stability. This approach represents a transition from providing immediate economic buffers to building long-term strategic resilience.
S&P Global noted that India was already aware of risks like rupee depreciation, foreign portfolio outflows, and a fragmented global economy. The Middle East conflict has intensified these concerns, leading to higher energy prices, supply disruptions, and increased currency volatility. Economic indicators, such as the HSBC India Composite Purchasing Managers' Index (PMI) for March 2026, have shown a moderation in private sector activity.
To counter external shocks, the Indian government has implemented measures including rationalizing cooking gas allocations, resuming purchases of Russian crude oil, expanding fuel and fertilizer subsidies, and reducing excise duties on petrol and diesel. An Economic Stabilization Fund has also been established for fiscal and financial buffering against future disruptions.
India's post-pandemic fiscal consolidation efforts are now facing new challenges. While the fiscal deficit was reduced from 9.2% of GDP in fiscal year 2021-22 to 4.4% in fiscal year 2025-26, new spending commitments to shield the economy from rising energy and food costs may slow this consolidation pace. A supplementary budget of Rs 2.8 trillion for subsidies and an additional Rs 1.2 trillion package, including a Rs 1 trillion Economic Stabilisation Fund for oil hedging, were announced.
S&P Global cautioned that this countercyclical shift risks temporarily breaching the fiscal consolidation path. The central government's debt-to-GDP ratio is estimated to rise to 57.5% from 56.1% in fiscal year 2025-26, potentially delaying the objective of reaching 49-51% by fiscal year 2030-31.
Despite these challenges, India's policy response reflects a broader emphasis on resilience and strategic autonomy. Fiscal measures, industrial policy adjustments, and efforts to diversify energy sources are being deployed to protect growth and reduce vulnerabilities in an increasingly uncertain global environment. The evolving fiscal posture demonstrates India's intention to balance growth support with long-term economic stability.