A BoB report suggests India's fertiliser subsidy bill could rise by up to Rs 70,000 crore in FY27 if crude oil prices average USD 80-90/barrel, posing a significant challenge to the government's fiscal consolidation goals.
India's fertiliser subsidy bill could increase by up to Rs 70,000 crore in FY27 if crude oil prices average between USD 80-90 per barrel, posing a challenge to the government's fiscal consolidation efforts, according to a report by Bank of Baroda (BoB).
The report said elevated oil prices could put pressure on the fiscal deficit ratio and create hurdles in achieving the budgeted fiscal deficit target for FY27.
Multiple Fiscal Challenges Emerge
According to the report, the fertiliser subsidy bill can increase by 30-40 per cent, translating into an additional burden of around Rs 50,000-70,000 crore if crude oil prices remain elevated. It stated "Challenges for meeting budgeted FD ratio if oil prices remain elevated, Fertiliser subsidy bill can increase by 30-40 per cent (approx. Rs 50-70,000 crore). Shortfall from special additional excise duty cut can be around Rs 1.3 lakh crore".
Apart from the higher fertiliser subsidy burden, the report noted that the government could face a revenue shortfall of around Rs 1.3 lakh crore due to a reduction in special additional excise duty collections.
The report also pointed out that dividend payouts from oil marketing companies (OMCs) could affect the Centre's non-tax revenue. It noted that nearly 30 per cent of PSU dividend receipts come from OMCs. In addition, corporate tax collections may also come under pressure if OMCs report losses, as they account for around 5 per cent of corporate tax collections.
Impact on Capital Expenditure
According to the report, the government's capital expenditure programme may have to be revisited if fiscal pressures intensify. Centre's capital expenditure has risen steadily from Rs 5.9 lakh crore in FY22 to a budgeted Rs 12.2 lakh crore in FY27.
Fiscal Slippage Projections
The report further stated that fiscal slippage could be between 0.3-0.4 per cent of GDP due to these shocks, with the final outcome depending on how expenditure is managed.
For its FY27 projections, Bank of Baroda assumed that the impact of the ongoing conflict would be felt for the next six months and that crude oil prices would average between USD 80-90 per barrel during the year. The report also cautioned that maintaining the fiscal deficit target may become difficult if oil prices remain high for an extended period.
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