Weak rupee, not oil at $80, is the ‘bigger challenge’ for FY27 fiscal math

On March 4, the rupee ended at a record low of Rs 92.15 a dollar.

• Govt expects minimal fiscal impact with oil at $80 per barrel
• Falling rupee may increase subsidy costs, especially for fertilizers
• Prolonged Middle East tensions could disrupt oil and LNG supplies

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The government is not foreseeing any significant impact on its fiscal math, if oil sustains at $80 per barrel in FY27. The bigger challenge, however, is the declining rupee which will feed into import costs, causing higher subsidy payout, a government source said.

"The rupee is facing pressure due to global uncertainties. The US-India trade deal framework may help in arresting the decline to an extent, but the global tensions will still weigh on rupee’s trajectory going forward," the source told Moneycontrol.

The government and the Reserve Bank of India (RBI) is not targeting any level of the rupee. On March 4, the rupee ended at a record low (Rs 92.15/$), breaching the Rs 92 per dollar mark for the first time in history, as elevated Brent crude prices amid geopolitical tensions in the Middle East left investors scrambling towards safe-haven assets such as the U.S dollar and gold.

"If the rupee keeps on depreciating, the subsidy bill for the government could increase—mainly on fertilizers," the source said. For FY27, the fertilizer subsidy outlay has been pegged at Rs 170,799 crore.

For FY26, the Revised Estimate (RE) pegged the fertilizer subsidy at Rs 186,460 crore – which is Rs 18,573 crore higher than the Budget Estimate (BE) for the current financial year.

Depreciating rupee also impact LPG subsidy. In FY26, the RE (Rs 15,120 crore) was higher than BE by about Rs 3,000 crore. For FY27, the BE has been pegged at Rs 12,084 crore.

That said, the government so far has not made any assessment on how much more it may have to spend in FY27 on subsidies, as it’s unclear how long the tensions in Middle East will last.

In 2025, the rupee was one of the worst-performing currencies in Asia as compared to its peers, ending the year with a depreciation of about 5 percent against the dollar. Beginning January 2026, the rupee has depreciated by around 2.5 percent.

For FY27, the government has pegged the fiscal deficit at Rs 16.96 lakh crore, or 4.3 percent of the GDP.  In FY26, the fiscal deficit is likely to be 4.5 percent.

Crude at $80-a-barrel

Meanwhile, crude oil price sustaining at $80 per barrel may not lead to a scenario where excise duty will have to be reduced by the government on retail prices of petrol and diesel. But if the oil prices touch $100 per barrel – than the situation would turn difficult, the source said.

Brent crude oil prices crossed $82 per barrel, up from $72 per barrel on February 27 owing to rising conflict in the Gulf. The government and analysts expect crude oil prices to further increase if the conflict is prolonged.

Brent crude futures for April soared to $83.99 per barrel on March 5, 2026, marking a significant 3.26% single-day jump amid the intensifying Strait of Hormuz crisis.

According to Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank: "A Rs 2 per litre cut in petrol and diesel excise duty could result in a revenue foregone of Rs 37,000 crore for the central government".

Gupta adds: "Higher prices sustaining will also lead to OMCs absorbing costs – which would result in lower dividend payouts to the government next financial year."

"We have to watch how long the tensions sustain. If the Strait of Hormuz remains choked for months, then we will have to see how oil supplies are arranged so that domestic price shocks are mitigated," Abhishek Upadhyay, Senior Economist, ICICI Securities Primary Dealership said.

"Right now, there seems no immediate impact on the fiscal math," Upadhyay added.

Countries in the Middle East account for around 30 percent of global crude oil and around 20% of global LNG production. A majority of this is transported through the Strait of Hormuz.

India imports about 85% of its crude oil and half of its LNG requirement. Of this, 40-50 percent of crude oil and 50-60 percent of LNG are shipped through the Strait of Hormuz. Most shipping vessels have stopped sailing on this route since March 1, 2026, due to increased risk of passage and any prolonged disruption of this trade route will have a bearing on global crude oil and LNG availability, and their prices, Crisil Ratings said in a note.

The price of Brent crude has already surged to around $82-84 per barrel (bbl) from an average $66-67 during January-February 2026. For Asian spot LNG, price has flared up from $10/MMBtu to $24–25/MMBtu. “A further surge would widen India’s current account deficit and stoke inflation. It will also impact India Inc’s profits, given the critical role of energy across sectors,” Crisil said.