With conservative tax revenue assumptions and an Economic Stabilisation Fund, the Centre has room to absorb “near-term shocks of mild intensity” without immediately breaching its fiscal deficit target, the finance ministry told a Parliamentary panel.
Earlier, Chief Economic Adviser V. Anantha Nageswaran had told the panel that at oil prices up to $90 a barrel, growth of 7–7.4% and inflation near 2% remained possible. But if prices climbed towards $130, India’s fiscal calculations could face a storm.
Responding to concerns expressed by the Standing Committee on Finance headed by BJP MP Bhartruhari Mahtab, the department of economic affairs told the panel that despite the West Asia-induced uncertainty, India entered the new financial year with a degree of confidence.
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“The fiscal consolidation path adhered to in recent years, coupled with the Budget’s conservative assumption of a gross tax revenue buoyancy of 0.8, which is below the historical average, and the creation of an Economic Stabilisation Fund (Rs 1 lakh crore) in the public account, provides room for fiscal interventions,” the DEA said. “The latter specifically offers flexibility to absorb near-term shocks of mild intensity without immediately deviating from the fiscal deficit target.”
In the Budget for FY27, the Centre has pegged a fiscal deficit target of 4.3% of GDP.
However, there are some concerns regarding States, which account for a major share of public spending, as they face growing financial pressures. Of the 18 states examined in the April 2026 review, nine projected revenue deficits, while ten were expected to cross the 3% fiscal deficit threshold, the panel was informed.
States spent increasing amounts on unconditional cash transfers and other committed expenses, leaving less room for productive capital investment. The 16th Finance Commission’s recommendation to discontinue revenue deficit grants was therefore seen as an important step towards encouraging States to raise their own revenues.
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