India likely to breach budgeted fiscal deficit target

New Delhi

India's fiscal deficit is likely to breach the budgeted target for the current fiscal and hit 4.5% of GDP as the government's policy response to the West Asia conflict could strain public finances, research firm BMI said on Wednesday.

The government in the 2026-27 Budget had projected a 4.3% fiscal deficit, a tad lower than 4.4% as per revised estimates for 2025-26. BMI also expects the government to introduce policies to redirect critical inputs to key industries, restrain business costs and improve financial support for firms.

BMI said it also expects the government to consider restrictions on exports of scarce inputs such as helium and sulphur, used for producing semiconductor chips. Since sulphur is also an important ingredient for making fertilisers, the government will strive to minimise disruptions to the agriculture sector, which employs 43% of India’s workforce.

The government will seek to restrain cost increases for businesses affected by the closure of the Strait of Hormuz. To this end, the Central government has established a ₹1 lakh crore Economic Stabilisation Fund. BMI estimates this will contribute 0.1% of GDP to fiscal expenditure in 2026-27. The Strait of Hormuz is a key shipping lane through which about 20% of the world's natural gas and crude oil transits.