Editorial. Challenging year
India's economy is expected to face challenges in the new financial year due to a prolonged oil price and supply shock. The country's trade deficit, current account deficit, growth, and inflation are likely to come under stress if the shock continues, with the Reserve Bank of India needing to take proactive measures.
India's economy begins the new financial year on an uncertain note. The country imports 85% of its oil, making it vulnerable to price and supply shocks. The trade deficit is expected to rise, potentially reaching $350 billion in FY26. A prolonged crisis could lead to an additional $45 billion outgo on oil imports, pressurizing the rupee and deficits. The government has limited fiscal space to absorb losses, with total debt at 85% of GDP. The fiscal deficit may expand if the Centre compensates oil companies for holding retail prices. Tax collections and subsidy budgets may also be affected.
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