India may widen fiscal deficit as US-Iran war strains finances

India may widen fiscal deficit as US-Iran war strains finances

India is likely to allow a larger budget deficit this year, according to Bloomberg.

The decision comes as the ongoing war in Iran pushes up energy subsidy costs, putting further strain on government finances.

As per the report, authorities are willing to increase the deficit by as much as half a percentage point from the 4.3% target set in February.

Fiscal deficit could reach 4.8% of GDP this year

The report indicates that India's fiscal deficit could reach 4.8% of its gross domestic product (GDP) this year.

This is a significant increase from the original target set earlier in the year.

The change is largely due to rising crude prices and supply disruptions after the closure of the Strait of Hormuz, which have affected India as a major oil importer and consumer.

State retailers hike petrol, diesel prices

In response to the rising energy costs, state retailers have hiked petrol and diesel prices by about 8%. The government has also reduced subsidies on cooking gas cylinders for households. These measures are aimed at managing the budget deficit amid the ongoing global crisis.

India imports nearly 90% of its oil

India imports nearly 90% of its oil, making it one of the most vulnerable countries to prolonged disruptions in global energy supplies due to the Iran war.

The government's fertilizer subsidy is also expected to increase by 20% this fiscal year, further adding to the financial burden.

Despite these challenges, authorities are keeping their options open and plan to reassess the fiscal outlook later this year.