High oil prices could hit India's fiscal health

A sustained rise in global crude oil prices could make it more expensive for India to manage its finances and external trade balance, the finance ministry has warned, flagging the risk that higher energy costs could once again put pressure on the country's fiscal deficit and current account.In its July Monthly Economic Review, the ministry said India's economy remains on a strong footing, but a prolonged increase in crude oil prices could emerge as a key risk amid continuing geopolitical tensions in West Asia.Also Read: Indian economy shows recovery despite global uncertainties, private investment gains momentum: Report"Nevertheless, the recent resurgence in global crude oil prices, if sustained, could re-emerge as a source of pressure on financing of both the fiscal deficit and the current account balance," the report said.The review said India's external sector continues to remain resilient, supported by robust exports, a strong services trade surplus, healthy remittance inflows and comfortable foreign exchange reserves.

It added that recent policy measures are expected to support capital inflows going forward.The ministry also cautioned that persistent tensions in the Gulf region continue to pose upside risks to inflation, the fiscal deficit and the current account deficit.

It noted that disruptions to shipping routes through the Strait of Hormuz have pushed up energy prices and import costs, adding to inflationary pressures for fuel-importing economies such as India.Also Read: Indian economy shows recovery despite global uncertainties, private investment gains momentum: ReportDespite these risks, the report pointed to improving external indicators.

India's current account posted a surplus of $2.8 billion during April-May 2026, compared with a deficit of $4.1 billion a year earlier, helped by stronger remittances and a resilient services surplus.

Foreign exchange reserves stood at $675.2 billion as of July 10, providing an import cover of around 10 months and offering a buffer against external shocks. ...