The Iran war is unlikely to have any impact on India's fiscal arithmetic in the current financial year ending March, two persons aware of the discussions said. A prolonged conflict, however, could weigh on the FY27 subsidy bill, but the government will account for it during the course of the year.
The Centre is currently weighing all possible effects of the Iran war on the Indian economy, and considering ways to shield it from disruptions in trade and energy supplies if it drags on, the people cited above said on the condition of anonymity. It assesses that until the end of March, when the financial year closes, farmers will be using fertilizers already procured or in the supply chain. Therefore, any potential hike in global prices of gas or fertilizer due to the war is unlikely to raise the fertilizer subsidy bill in FY26, other than the additional year-end requirement that has already been accounted for, according to discussions in the government.
“For FY27, funds have been allocated, and various departments and agencies have to start utilizing them. For any subsequent mid-year adjustments, there is ample time ahead, and additional requirements, if any, will be taken care of, as has been done in the past,” said one of the persons quoted above, who spoke on condition of not being named. If need be, fertilizer subsidy and LPG subsidy for FY27 can be increased later in the year, the person said.
Import-heavy
India imports a significant quantity of fertilizers, as well as natural gas used to produce its most popular fertilizer urea. Fertilizer is the largest commodity, the global price of which has a direct bearing on subsidy bills. In the case of petroleum, central subsidy is limited to cooking gas and kerosene, and often, state-owned auto-fuel retailers absorb the volatility in global prices by spreading out retail fuel price adjustments.
On Friday, the government assured adequate fertilizer availability for the upcoming kharif season starting June. The Department of Fertilisers said India currently has a strong inventory buffer, supported by advance stocking and relatively lower consumption during the lean season. It said fertilizer manufacturers have advanced their annual maintenance shutdowns to March, a period of relatively low demand, allowing plants to remain fully operational during the kharif season. It has also asked refiners to increase production of cooking gas.
The second supplementary demands for grants for the financial year ending in March, to be tabled in Parliament later in the current session, is likely to reflect the final fiscal adjustments that are typically part of the budget session exercise. This is unlikely to be affected by the ongoing Iran war. Data from Controller General of Accounts (CGA) showed that by the end of January, 98% of the ₹1.86 trillion of the revised subsidy estimate for the current fiscal has been used, which is likely to be replenished in the second supplementary demands.
Lengthy conflict?
The conflict needs to be observed for how it evolves, said Suranjali Tandon, associate professor at the National Institute of Public Finance and Policy.
“If it prolongs beyond a month, then energy and commodity supply disruptions could result in costlier fertilizers and fuel. Inflationary pressures will compel central banks to tighten monetary policy. Higher cost of funds will have a bearing on not just businesses, but also on the government’s cost of borrowings,” said Tandon.
“State-owned oil marketing companies’ retail pricing response will influence the extent of the price surge that is passed on to consumers, their own financial health and the extent of dividend they are able to give to the government,” she added.
India is in a comfortable position on energy security at present and current position of stock is comfortable, news agency ANI reported on Thursday, quoting an unnamed government source. “Australia and Canada have also offered to sell gas to India. India is looking for other alternative sources also. Recently, India signed a new contract with UAE and US,” the ANI report said.
“India imports 195 million metric standard cubic meters a day (mmscmd) of gas, out of that Qatar supplies only 60 MMSCMD, India looking for alternative markets to buy gas… India is in talks with major oil producers and traders to buy crude and LPG,” ANI reported.
Currently, the fertilizer subsidy is projected at ₹1.71 trillion for FY27, slightly lower than the revised estimate of ₹1.86 trillion for FY26. For the current year, petroleum subsidy of ₹15,120 crore has been allocated and by end of January, only about half of which has been used.