India could face additional fiscal burden of Rs 1.25 trillion to Rs 1.50 trillion if crude oil prices continue to hover around $90 per barrel beyond July, according to Jefferies. To manage the strain, the Centre may have to slow growth in non-defence capital expenditure from the budgeted 10% YoY to around 0%-2% YoY in FY27. Here’s what is putting pressure on the government’s fiscal calculations and the measures it may take to ease the burden.
Rs 90,000 crore burden on Centre: Jefferies
Brent crude, which has been surging since February, could saddle India with an extra burden of Rs 75,000 crore to Rs 90,000 crore if it stays around $90 a barrel beyond July.
The overall impact could climb to Rs 1.25 trillion–Rs 1.5 trillion once you factor in the share borne by states and government-owned fuel retailers on the back of rising crude prices with crude trading above $100 per barrel.
Non-defence capex may remain flat
Jefferies expects the government to shoulder the higher burden by cutting discretionary spending, especially non-defence capital expenditure. They think that the government is unlikely to relax its fiscal deficit target of 4.3% for FY27 despite the pressure.
“Excluding the defence capex, budget for FY27E is Rs 9.9 trillion, up 10% YoY. This can see a compression of 8-10%.” Jefferies noted. “The non-defense capex, however, can be flat YoY for FY27.”
Fuel duty cuts may cost govt over Rs 1 trillion: Jefferies
So, here is what is happening, Brent crude prices have surged since February, putting pressure on state-run oil marketing companies (OMCs), which were absorbing losses on fuel sales. To reduce the burden on OMCs, fuel prices were raised by around Rs7-Rs7.5 per litre over two weeks.
However, to partly mitigate the impact of higher fuel prices , the government cut excise duty on petrol and diesel by Rs10 per litre in March 2026, bringing duties down to Rs 7.8 per litre on petrol and Rs 11.9 per litre on diesel. According to Jefferies, the move could reduce fuel excise duty collections by Rs1 trillion-Rs1.2 trillion.
OMCs still facing Rs 7-Rs 8 per litre losses: Jefferies
Jefferies said that state-run OMCs are currently absorbing losses of around Rs 7-Rs 8 per litre on fuel sales despite recent retail price hikes.
According to Jefferies, OMCs would break even only if Brent crude falls to around $85-$87 per barrel at current fuel prices.
“Retail fuel prices need to rise further from the current level. Other compensating measures include a push for disinvestments is likely.”
Fertiliser, LPG subsidy burden may rise by Rs 0.40 trillion
LPG prices have seen only a limited increase by 7%, while fertiliser prices have not been raised despite a sharp jump in international prices. Global LPG prices are up 44%, while urea prices have surged 120%.
According to Jefferies, given the limited pass-through of higher prices to consumers, the government’s fertiliser subsidy burden could rise by Rs 0.30 trillion-Rs 0.40 trillion in FY27 if crude prices ease to around $90 per barrel from July onwards.
However, if Brent crude remains near $100 per barrel, the additional subsidy burden could rise sharply to around Rs 1.1 trillion-Rs 1.3 trillion above the budgeted estimates.
Weak monsoon may add to govt’s fiscal pressure: Jefferies
Jefferies also flagged concerns over a weaker monsoon. The India Meteorological Department (IMD) has forecast rainfall 8% below normal during the June-September 2026 monsoon season.
The brokerage said weak rainfall could increase spending under the rural employment guarantee scheme by Rs0.10 trillion-Rs0.20 trillion due to higher demand for rural jobs.
States may also seek additional drought relief support from the Centre.
15% Gold duty hike, windfall tax may provide fiscal cushion: Jefferies
The government has already increased the customs duty on gold and silver imports to 15% could partly offset the revenue loss. Jefferies estimate that this could generate additional revenues of around Rs0.4 trillion-Rs0.6 trillion even after assuming a decline in imports.
Windfall taxes on fuel exports may add another Rs0.05 trillion-Rs0.10 trillion in revenues.
However, the RBI’s dividend payout of Rs2.9 trillion was broadly in line with the government’s budget assumptions and is unlikely to provide extra support, the report added.
Conclusion
Jefferies believes the government will try to protect its FY27 fiscal deficit target despite mounting pressure from higher crude oil prices, rising subsidies and weaker revenue collections. While measures such as higher gold import duties, windfall taxes and RBI dividend may provide some relief, the brokerage expects the Centre may still have to rely on tighter discretionary spending and further fuel price hikes if crude prices remain elevated.
TOPICSBrent crudeCrude oilcrude oil pricesDefencejefferies + 0 MoreThis article was first uploaded on May twenty-eight, twenty twenty-six, at forty-seven minutes past one in the afternoon.