Fiscal Market in West Asia

West Asia's fiscal market is facing significant challenges due to the ongoing conflict in the region. The conflict has led to a surge in global crude oil and natural gas prices, which is likely to complicate India's fiscal position in FY2027. According to ICRA, the government's fertiliser and LPG subsidy outgo may increase, while corporate tax collections, refining margins, and dividend receipts may be weighed down.

The conflict has also disrupted supplies, including key inputs for fertiliser production, leading to a potential rise in fertiliser subsidies. The government's fiscal deficit target of 4.5% of GDP may be at risk if the conflict persists and energy prices remain elevated. To mitigate the impact, the government may use the Economic Stabilisation Fund to absorb part of the fiscal shock 

The impact of the West Asia conflict on India's economy extends beyond energy prices. Remittance inflows are also likely to be affected, as about 38% of total inward remittances originate from the Middle East. A slowdown in remittances could pressure the rupee and widen the current account deficit.