Rising Crude Costs to Inflate India's Fertiliser Subsidy and Challenge Fiscal Goals

India's fertiliser subsidy bill might surge by up to Rs 70,000 crore in FY27 due to crude oil prices. This could hinder fiscal consolidation efforts. A report by Bank of Baroda highlights budgetary concerns stemming from elevated oil prices, excise duty cuts, and potential revenue shortfalls from oil marketing companies.

The looming threat of rising crude oil prices could significantly inflate India's fertiliser subsidy bill, posing a formidable challenge to the government's fiscal consolidation endeavors. According to a recent report by Bank of Baroda, if crude prices hover between USD 80-90 per barrel, the subsidy bill may swell by approximately Rs 70,000 crore in FY27.

This escalation in the fertiliser subsidy, estimated to increase by 30-40 percent, would pressure the fiscal deficit ratio, making it difficult to achieve the budgeted targets. Compounding the financial strain, the government might face a revenue shortfall nearing Rs 1.3 lakh crore due to reduced collections from special additional excise duties.

The report elucidates further potential fiscal strains, noting the impact on non-tax revenues from oil marketing companies' dividend payouts and the corporate tax contributions tied to these entities. Bank of Baroda warns that without strategic management, fiscal slippage could range between 0.3-0.4 percent of GDP, necessitating a reevaluation of capital expenditure plans as pressures mount.