The Indian government will proceed with its planned capital expenditure of Rs 12.22 lakh crore for the current fiscal year to sustain economic growth, despite rising fiscal pressures linked to the ongoing Middle East conflict, a senior finance ministry official stated on Friday, as reported by PTI.
Expenditure Secretary Emphasizes Capex Priority
Expenditure Secretary V Vualnam confirmed that capital spending remains a top priority even as the economy faces multiple challenges in the coming quarters. “The fiscal stress is indeed very much a reality, but at the same time... the capex would really be a priority item, which we would like to preserve and ensure that it continues at the budgeted level,” Vualnam said at the ICPP Growth Conference organized by Ashoka University.
He noted that the next few months and the upcoming year may witness “a lot of stress points,” with tax buoyancy also likely to come under pressure. Tax collections could be impacted after the government reduced excise duties on petrol and diesel in late March to control domestic fuel prices amid the crude oil surge. The excise duty reduction is estimated to cost the exchequer around Rs 7,000 crore for a 15-day period.
Key Sectors for Capital Expenditure
Vualnam highlighted that highways, railways, shipping, ports, and urban development would be the primary focus sectors for FY27 capital expenditure. Referring to the global backdrop, he said uncertainties have created a “very challenging situation” for India, especially as the country remains a net importer of petroleum products.
Since the start of the West Asia war on February 28, crude oil prices have surged to a four-year high of $126 a barrel on Thursday, up from around $73 before the conflict began. India imports 60 percent of its LPG requirement, and of that, 90 percent passes through the now-closed Strait of Hormuz, he added.
Government’s Proactive Response
“It would be a very challenging situation,” the secretary added. He said the government has remained proactive and has responded to changing conditions with agility. India’s fiscal prudence has placed the country in a stronger position to manage current uncertainty, he stated.
“We will, on our part, be committed to see that the required funds are provided in spite of all the stress points that may come up,” Vualnam said.
Fiscal Deficit and Export Duties
The FY27 Budget has pegged the fiscal deficit at 4.3 percent of GDP, though it is now seen at 4.5 percent after a downward revision in India’s nominal GDP under the new series. The Centre has also imposed an export duty of Rs 23 per litre on diesel and Rs 33 per litre on aviation turbine fuel to ensure adequate domestic supply. These duty revisions are being reviewed every fortnight.
