Finance Minister Nirmala Sitharaman on Monday said fiscal prudence has provided the government with sufficient room to sustain capital expenditure and support sectors impacted by the Middle East crisis, while also enabling monetary policy flexibility, PTI reported.She said the Reserve Bank has the space to consider further rate cuts to deal with emerging economic challenges.Highlighting the role of sound public finance, Sitharaman said prudent fiscal management enhances the ability to respond to downturns.“Today, many countries with high debt and large deficits have no room to manoeuvre and they face a grim choice between austerity and instability,” she said at an event organised by the National Institute of Public Finance and Policy (NIPFP).On the contrary, she added, “India has fiscal space — room to maintain our capex programme, room for the RBI to cut rates, room to offer targeted support to affected sectors. This is the dividend of a decade of fiscal discipline. This is the strategic value of fiscal prudence that pays dividends across decades.”Sitharaman said the government has taken multiple steps to shield consumers and industries from rising crude oil prices.India had on March 26 reduced excise duty on petrol and diesel by Rs 10 per litre. Currently, excise duty on petrol stands at Rs 3 per litre, while it is zero on diesel.The government has also imposed an export duty of Rs 21.50 per litre on diesel and Rs 29.50 per litre on aviation turbine fuel (ATF).On April 2, import of critical petrochemical products was exempted from customs duty to ensure supply stability amid disruptions in shipping routes due to the Middle East conflict.Global crude prices have surged nearly 50% since the United States and Israel launched military strikes on Iran on February 28, followed by retaliation from Tehran.
Global uncertainty, energy risks intensify
Observing that the current year is more challenging than the previous one, Sitharaman said, “the escalation of Middle East conflict has evolved from a regional security concern into a systemic tremor threatening the vital arteries of global energy, and hardening the lines of a new, multipolar world order.”She also pointed to broader global challenges.“Trade fragmentation has introduced severe uncertainty into global supply chains. This led to sharp downward revisions in global growth forecasts, but the year ended more optimistically than previously perceived, particularly for India,” she said.
India’s debt metrics remain strong
On public debt, the finance minister said India stands out among major economies.India’s general government debt-to-GDP ratio, including states, is about 81%, the lowest among major economies after Germany.She added that India is the only major economy where the IMF projects the ratio to decline significantly to 75.8% by 2030, while debt levels in economies such as the US, China and Germany are expected to worsen.“Our external debt-to-GDP ratio stands at just 19.1 per cent (as of September 2025) — one of the lowest in the emerging market world. India’s foreign exchange reserves, at over USD 688 billion (as of March 31, 2026), provide import cover of approximately 11 months — a substantial buffer,” she said.
Decade of reforms
Sitharaman emphasised that these outcomes are the result of sustained policy choices.“This is not an involuntary outcome… it is the product of deliberate, sustained, and sometimes politically difficult choices made over years of fiscal management,” she said.She added that India has undergone a structural shift in fiscal policy.“We have credibly changed the course of the fiscal policy from consumption-led deficits (under UPA) to productive investment-led consolidation under the leadership of Prime Minister Narendra Modi,” she said.Prudent fiscal policy, she noted, is not just about austerity but also about efficient and transparent use of resources.This approach has strengthened macroeconomic stability, resulting in credit rating upgrades from agencies such as Morningstar DBRS, S&P, and R&I in 2025.
From ‘Fragile Five’ to fastest-growing economy
Recalling India’s earlier classification as part of the ‘Fragile Five’, Sitharaman said the country has significantly improved its macroeconomic fundamentals.“We began with a fiscal deficit on an unsustainable trajectory. We have brought it to 4.4 per cent of GDP, en route toward 50 per cent debt-to-GDP by 2030-31. We began with a tax system built on suspicion. We have created one premised on trust,” she said.She added that India is now the fastest-growing major economy in the world.Sitharaman said the path to Viksit Bharat 2047 will require navigating multiple challenges, including climate finance, subnational fiscal reforms, debt management, demographic changes, returns on public investment and technology-led disruptions.
MPC meet begins amid inflation concerns
The Reserve Bank’s rate-setting panel on Monday began its three-day deliberations for the first bi-monthly monetary policy of the fiscal, with expectations of a status quo on the benchmark lending rate amid concerns of a potential spike in inflation due to the ongoing Middle East crisis.The outcome of the six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, is scheduled to be announced on Wednesday.The RBI has reduced the policy rate by a cumulative 125 basis points since February 2025, marking its most aggressive easing cycle since 2019. The last cut of 25 basis points came in December, while the central bank maintained a pause in its February policy.Experts said the MPC will factor in geopolitical tensions in Middle East, volatility in commodity prices and sharp currency movements, which have impacted the rupee.While retail inflation has moved closer to the RBI’s medium-term target of 4%, the recent surge in global crude oil prices has raised concerns about second-round effects on domestic prices, especially fuel, transportation and core inflation.Estimates suggest that every $10 per barrel increase in crude prices can push inflation higher by up to 0.60%. Crude, which had hovered around $60 per barrel for an extended period, has risen above $100 since the conflict began in late February.The rupee has also depreciated by over 4% since the start of the war, adding to imported inflation pressures.
Inflation targeting framework
The government has mandated the RBI to maintain retail inflation at 4%, with a tolerance band of +/-2%, for another five-year period ending March 2031.India adopted the inflation-targeting framework in 2016, with the MPC tasked to maintain annual inflation at 4% within a band of 2% to 6%. The framework has continued since then. As per the latest data, retail inflation rose to 3.21% in February from 2.74% in January.
