Business: If oil remains at $80 per barrel in FY27, the government does not see any significant impact on its fiscal math. However, a government source said the bigger challenge is the falling rupee, which will increase import costs, leading to higher subsidy payments.
The source said, “The rupee is under pressure due to global uncertainties. The US-India trade deal framework may help arrest the fall to some extent, but global tensions will further impact the rupee’s movement.”
The government and the Reserve Bank of India (RBI) are not targeting any level of the rupee. On March 4, the rupee closed at a record low (Rs 92.15/$), crossing the Rs 92 per dollar mark for the first time in history, as higher Brent crude prices amid geopolitical tensions in the Middle East forced investors to flee to safe-haven assets like the US dollar and gold.
“If the rupee continues to weaken, the government’s subsidy bill could rise—especially on fertiliser,” the source said. For FY27, the fertilizer subsidy outlay has been kept at Rs 170,799 crore.
For FY26, the revised estimate (RE) puts the fertilizer subsidy at Rs 186,460 crore – which is Rs 18,573 crore more than the budget estimate (BE) for the current financial year.
The fall in rupee also affects LPG subsidy. In FY26, RE (Rs 15,120 crore) was more than BE by about Rs 3,000 crore. For FY27, BE has been kept at Rs 12,084 crore.
Despite this, the government has not yet given any estimate on how much more it may have to spend on subsidies in FY27, as it is not clear how long the tensions in the Middle East will last. In 2025, the rupee was one of the worst performing currencies against its peers in Asia, ending the year losing nearly 5% against the dollar. Since January 2026, the rupee has fallen by about 2.5 percent.
Crude at $80 per barrel
Meanwhile, with crude oil prices remaining at $80 per barrel, the government may not have to reduce excise duty on retail prices of petrol and diesel. But if oil prices reach $100 per barrel – things will become difficult, the source said.
Due to the increasing conflict in the Gulf, the prices of Brent crude oil increased from $72 per barrel to $82 per barrel on February 27. The government and analysts expect that if the conflict continues, crude oil prices will increase further.
According to Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank: “Reduction of excise duty on petrol and diesel by Rs 2 per liter could result in a revenue loss of Rs 37,000 crore to the central government.”
Gupta adds: “With prices continuing to remain high, OMCs will also have to absorb costs – leading to lower dividends for the government in the next financial year.”
“We will have to see how long the tension continues. If the Strait of Hormuz remains blocked for months, we will have to see how oil supplies are managed so that shocks to domestic prices can be mitigated,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
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