Key facts
- India's merchandise trade deficit narrowed to $28.21 billion in May.
- India's budget deficit may widen to 4.8% of GDP for the fiscal year ending March 2027, exceeding the 4.3% target.
- Soaring energy import bills due to Middle East turmoil are pressuring India's public finances.
- India imports over 85% of its oil, with a significant portion previously from the Middle East.
- The government plans to reassure credit rating agencies that fiscal deterioration is due to external pressures.
India's budget deficit is at risk of exceeding its target for the fiscal year ending March 2027, potentially widening to 4.8% of GDP from a previously set 4.3% limit. This fiscal pressure stems from the ongoing oil supply shock and rising energy import bills, exacerbated by Middle East turmoil. The government plans to assure credit rating agencies that any fiscal deterioration is a result of external geopolitical pressures rather than changes in fiscal policy.
India, a major crude oil importer consuming over 85% of its needs, previously sourced a significant portion of its energy from the Middle East. The current crisis has led refiners to diversify imports, including increasing volumes from Russia, Venezuela, and Brazil. Analysts warn that sustained high oil prices could negatively impact India's currency, economic growth, and inflation, as noted by the Reserve Bank of India.
Meanwhile, India's merchandise trade deficit narrowed slightly to $28.21 billion in May, with exports rising to $45.2 billion and imports to $73.41 billion. Services exports contributed an estimated $17.7 billion surplus. Discussions are ongoing for an interim trade agreement with the United States, with U.S. Trade Representative Jamieson Greer scheduled to visit India for talks.