India buys almost all of its oil from abroad. So one event hit hard.
The Strait of Hormuz shut down. That's the narrow lane that carries much of the world's oil. About a fifth of global oil moves through it. When it closed, prices spiked fast. Now India is rationing diesel, and it's getting ready to break its own budget.
A deficit is simple. It's the gap between what a government spends and what it takes in. India aimed to keep its deficit at 4.3% of GDP. GDP is the value of all a country makes.
Now officials may let it stretch to 4.8%. That half-point jump sounds small. For an economy this size, it means a lot more borrowing. And more borrowing can raise costs across the economy. It can also crowd out other spending, from roads to schools.
It would also be a first in years. India hasn't missed this target since the pandemic.
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India imports about 90% of its oil. So a price spike hits it harder than most. It's the world's third-largest oil buyer.
Oil is India's single biggest import, so the war lands straight on its books. Diesel is the bigger worry, though. It runs trucks, trains, and farm gear nationwide, so rationing it slows the whole economy.
The Iran war started in late February. It sent oil prices up and oil supply down. India stepped in to shield drivers from the worst of it.
To do that, it cut fuel taxes, which means less money coming in. That tax cut is costly, draining roughly 14,000 crore rupees a month from the budget. Even so, state sellers raised petrol and diesel about 8%. The government also trimmed help on cooking gas.
The bill is huge. India's oil and gas import costs jumped 53% in April alone.
It isn't just fuel. India's fertilizer subsidy may jump about 20% this year. Why? Fertilizer is made from natural gas, and gas got expensive too. Higher gas prices ripple out, raising the cost of food and farming. The pressure is broad and growing, with fuel, fertilizer, and food bills all climbing at once.
So the government is eyeing spending cuts across departments. It's also courting foreign investors to help fill the gap. After a recent central bank move, the country saw a $3 billion rush into its debt.
India says it will take another look later this year. By then, it should know more about the war and its own income. In the meantime, markets are watching the rupee and bond yields for signs of stress.
For the world's third-largest oil buyer, the cost of this war is now hitting the national budget.
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