An Indian government official has announced a significant policy decision regarding gas supply allocation, stating that gas supply to fertilizer factories across the country will be decreased. This development affects the fertilizer manufacturing sector's operational capacity and production planning.

Fuel Export Policy Remains Unchanged

Despite the reduction in domestic gas allocation to fertilizer facilities, the government official clarified that there are no current plans to reduce fuel exports from India. This indicates the government's commitment to maintaining its position in international fuel markets while managing domestic energy distribution.

LPG Supply Enhancement from North America

The official announced that additional LPG supply arrangements have been secured from international sources. Specifically, enhanced LPG supplies are expected to arrive from both the United States and Canada, which should help offset some of the domestic supply constraints.

Aviation Fuel Stocks Adequate

Regarding aviation sector requirements, the government official confirmed that current jet fuel stock levels are sufficient to meet existing demand. This assurance provides stability for the aviation industry amid the broader energy supply adjustments being implemented across different sectors.

India's central government is well-positioned to achieve its fiscal deficit target of 4.4% of GDP for FY26 despite facing revenue challenges, according to recent analysis from ANZ Research. The assessment comes as the government prepares for the upcoming Budget session amid evolving fiscal dynamics.

FY26 Fiscal Deficit Outlook

Dhiraj Nim, Economist and FX Strategist at ANZ Research, expressed confidence in the government's ability to meet its fiscal consolidation goals. In an exclusive interview with NDTV Profit on January 13, he outlined the key factors supporting this projection.

"A mildly lower fiscal deficit ratio can deliver the desired debt-to-GDP ratio. The key expectation from the upcoming Budget session is that the government would be able to meet fiscal deficit target of 4.4% of GDP for FY26," Nim stated.

The analysis indicates that strong real GDP growth will provide a favorable backdrop for fiscal management, allowing the government to maintain its consolidation path without aggressive spending cuts.

Revenue Challenges and Mitigation Strategies

Despite the positive outlook, the government faces significant revenue headwinds. Nim expects a substantial net tax shortfall due to an unexpected decline in tax buoyancy throughout the year.

"Thanks to the large central bank dividend and some expenditure rationalisation both on account of capex and non interest revenue expenditure, the government would be able to just meet its fiscal deficit target," Nim explained. This approach will be implemented without disrupting the broader borrowing program.

Non-tax revenues are expected to provide additional support, with projections suggesting they could exceed budget estimates by 0.20% of GDP. Excess central bank dividends will remain a crucial revenue source, while weak oil prices are anticipated to generate higher dividends from oil marketing companies.

FY27 Fiscal Consolidation Framework

Looking ahead to FY27, the fiscal landscape presents tighter constraints. Nim emphasizes the importance of conservative tax assumptions in budget planning for the coming fiscal year.

The FY27 fiscal deficit target represents an 'endogenous' target as the government transitions from traditional fiscal deficit targeting to a debt targeting framework. Under this new approach, the government may target debt at 55% of GDP.

"Even if the RBI dividends remain quite large, the government will have to reduce its expenditure by 20 bps of GDP to meet its fiscal deficit target which we expect to be 4.2% of GDP," the economist noted.

Strategic Fiscal Transition

The analysis suggests that India's fiscal consolidation strategy reflects a measured approach to debt management. The economic outlook for FY27 and the debt targeting methodology indicate that aggressive fiscal tightening may not be necessary to achieve desired debt sustainability metrics.

The transition to debt targeting represents a significant shift in fiscal policy framework, potentially providing greater flexibility in managing short-term fiscal variations while maintaining long-term debt sustainability objectives.

Source: https://www.ndtvprofit.com/budget/budget-2026-will-govt-meet-fy26-fiscal-deficit-target-economist-eyes-firm-capex-despite-tightness