Fertiliser subsidy bill may rise by up to Rs 70,000 crore if crude averages USD 80-90/bbl in FY27: BoB Report
Mumbai, June 24
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.
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.
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.
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.
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.
— ANI
Reader Comments
As an expat living in India, I've seen how sensitive the economy is to oil prices. The report's projection of a Rs 70,000 crore additional burden is concerning. It's not just about fertilisers—it's the cascading effect on everything from transport to food prices. The government needs to be proactive, maybe explore alternative energy sources and improve agricultural efficiency. Otherwise, the common man will feel the pinch. 😟
This is a wake-up call for our policymakers. We cannot keep subsidising fertilisers blindly—it's bad for the soil and the economy. Redirect some of that money to promote organic farming and water conservation. Also, why are we cutting excise duty on crude when we should be taxing it more to fund green initiatives? The government has to walk a tightrope, but with better planning, we can reduce this vulnerability.
I'm a foreign investor looking at India's macro story. This report highlights a key risk: oil price volatility can derail fiscal consolidation. The Rs 1.3 lakh crore shortfall from excise duty cuts is no small beer either. But India has managed crises before—I'm cautiously optimistic that the government will prioritise capex and maintain growth. The real challenge is to wean off oil dependence without hurting growth.
Interesting analysis from BoB. The 30-40% spike in fertiliser subsidy is scary, but I'm more worried about the impact on farmers. If oil stays high, input costs go up, and then MSPs might not keep pace. The government should consider a targeted subsidy reform: give direct cash transfers to small farmers instead of blanket subsidies. That would help the needy and reduce fiscal pressure. Just a thought. 🌾
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