India’s fiscal deficit is projected to exceed the budgeted target for the 2026-27 fiscal year amid ongoing geopolitical tensions in West Asia, according to research firm BMI. The government had initially set a fiscal deficit goal of 4.3% of GDP in the recent budget, slightly below the revised estimate of 4.4% for 2025-26. However, BMI forecasts that the deficit could widen to approximately 4.5%, driven by policy measures responding to the conflict in the region.

The disruption caused by the West Asia conflict, particularly the closure of the Strait of Hormuz—a crucial maritime chokepoint through which roughly 20% of global crude oil and natural gas supplies pass—has prompted the Indian government to adopt strategies aimed at mitigating economic risks. These measures include redirecting essential inputs to priority industries, controlling rising business costs, and enhancing financial support for affected enterprises.

Furthermore, the government is reportedly considering imposing export restrictions on scarce materials such as helium and sulphur, which are vital for semiconductor manufacturing. Since sulphur also plays a key role in fertilizer production, authorities are expected to balance export controls carefully to avoid undue disruption to the agriculture sector, which employs nearly 43% of India’s workforce.

To cushion the broader economic impact, the Central government has established a ₹1 lakh crore (approximately $12 billion) Economic Stabilisation Fund. BMI estimates that this fund will add about 0.1% of GDP to public expenditure in the upcoming fiscal year. The fund is designed to help contain cost increases for businesses contending with supply chain interruptions and elevated input prices stemming from the conflict.

The anticipated breach of the fiscal deficit target underscores the challenges facing India’s public finances as external shocks strain budgetary priorities. The government’s response highlights a balancing act between maintaining economic stability and supporting critical sectors amid ongoing geopolitical uncertainties.