Amid supply disruptions and commodity price pressures linked to the US-Iran war, the government doubled the corpus of the Economic Stabilisation Fund late last fiscal. Over time, this fund may become an important instrument for enhancing India’s economic resilience, writes Rajnish Gupta
l What is an Economic Stabilisation Fund?
DUE TO THE growing frequency and intensity of geopolitical events and global headwinds, the Indian government had established a dedicated Economic Stabilisation Fund (ESF) in 2025-26 to ensure macroeconomic resilience. The fund is intended to provide the government with some fiscal headroom during periods of uncertainty, reducing the need
for abrupt expenditure cuts or excessive borrowing.
The ESF is a dedicated fiscal reserve for meeting unanticipated expenditure arising from global volatility. It may serve as a counter-cyclical buffer accessible during external shocks such as supply disruptions, pandemics, trade sanctions and tariff related disruptions. The fund corpus could help finance additional financial support to protect employment-intensive sectors during downturns. The ESF saw a budgetary allocation of Rs 50,000 crore in the revised estimate for 2025-26.
ALSO READFuel prices up Rs 7.5/litre in 12 days; OMC losses still near Rs 600 crore daily
l Why has the corpus been doubled?
THOUGH `50,000 crore was allocated for the ESF, amid higher-than-expected supply disruptions and commodity price pressures linked to the West Asia crisis, the government, in its second supplementary demand for grants (March 13, 2026), increased the corpus to Rs 1 lakh crore, amounting to 0.29% of the country’s GDP in 2025-26.
Comparable mechanisms exist in other countries. For example, Chile’s Economic and Social Stabilisation Fund was estimated at 1.1% of GDP in 2025.
The adequacy of the corpus is contingent on the duration and magnitude of external shocks. As the Indian economy grows, the ESF’s size relative to GDP may need to be enhanced in tandem. The government could therefore consider a calibrated increase in the fund to 1-2% of GDP to strengthen preparedness for such exigencies.
l How ESF differs from contingency or emergency funds
THE ESF DIFFERS from India’s Contingency Fund and Disaster Relief Funds in terms of purpose. The Contingency Fund addresses unforeseen short-term expenditures, while Disaster Relief Funds are targeted at natural calamities such as floods or cyclones. The ESF, in contrast, is meant for macroeconomic stabilisation during systemic, externally driven shocks. It aligns more closely with counter-cyclical fiscal policy and is expected to operate under defined economic triggers, unlike existing funds which may be more restrictive.
l What are the triggers for deploying the fund?
THE ESF MAY be utilised during episodes of significant macroeconomic stress such as sharp increases in crude prices, geopolitical conflicts, sudden capital outflows, or economic slowdowns. Recent disruptions in energy markets and supply chains illustrate such risks.
ALSO READIndia-Korea start 12th round talks for CEPA upgrade
Deployment of the funds should depend on the nature of the shock to the economy. It could take the form of temporary subsidies, liquidity support, credit guarantees, sector-specific relief, or support for strategic imports.
l How should the ESF be structured, governed, and managed?
THERE SHOULD BE an institutional setup to manage the ESF. Governance may involve oversight by an independent advisory or oversight committee. The fund should be audited to ensure credibility and minimise discretionary use. The fund’s inflows could be linked to windfall revenues or cyclical surpluses, while its outflows should be strictly tied to predefined macro-economic or sectoral stress indicators.
l Which sectors and types of risks is the fund intended to address?
THE ESF IS primarily intended to address systemic and sectoral risks that have broader macroeconomic implications, including volatility in energy and commodity markets, disruptions in agriculture and food supply chains and stress in financial systems. The ESF is expected to protect sectors vulnerable to external shocks, particularly those which have high economic and employment impact. Such a mechanism can help mitigate supply disruptions, contain inflationary pressures, and support growth momentum. Over time, it may become an important instrument for enhancing India’s economic resilience.
The writer is partner, Tax and Economic Policy Group, EY India
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.
TOPICSFiscalfiscal deficitThis article was first uploaded on May twenty-five, twenty twenty-six, at twenty-seven minutes past nine in the night.