India is strategically accelerating reforms, including enhanced foreign direct investment, expedited divestment, and robust asset monetisation, to safeguard its economic growth trajectory against the backdrop of escalating global fuel and fertiliser prices exacerbated by the West Asia crisis.
Photograph: Amit Dave/Reuters
Key Points
- The government plans to accelerate reforms, including boosting foreign investment, speeding up divestment, and asset monetisation, to sustain India’s growth momentum.
- India’s GDP growth momentum remains robust, with domestic consumption holding up despite external challenges like rising fuel and fertiliser import costs.
- Financial-sector reforms will continue, aiming to deepen capital markets and attract long-term foreign capital, with specific steps to boost FDI flows.
- The government’s fiscal deficit target of 4.3 per cent of GDP for the current financial year is deemed achievable through non-tax revenue measures.
- High-frequency indicators, including robust GST collections and improving private-sector investment, point to continued economic resilience.
The government plans to push ahead with reforms, including further measures to boost foreign investment, speeding up divestment and asset monetisation, as it seeks to preserve India’s growth momentum in the face of rising fuel and fertiliser import costs triggered by the West Asia crisis, government sources said on Tuesday.
They said that the country’s GDP growth momentum remains intact, with domestic consumption holding up.
“Growth is not under stress, but there are external challenges… Quarter after quarter, growth is showing momentum. Domestic economy is doing good, consumptions are not coming down…,” the sources said.
The stress that India is facing currently in terms of high oil and fertiliser import bills due to the closure of the Strait of Hormuz are “not just the normal kind of uncertainties”, they said.
Boosting Foreign Investment and Capital Markets
Sources said the government would continue to pursue financial-sector reforms aimed at deepening capital markets and attracting long-term foreign capital.
There are steps required, and India will be taking them up steadily on boosting FDI flows into the country, sources said.
Recent measures to support the rupee and improve market accessibility are intended to strengthen India’s case for inclusion in major global bond indices, while helping broaden the investor base for domestic securities and lower borrowing costs over time.
Last Friday, the government introduced a series of reforms to increase Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs) to deepen the capital market.
Key measures included tax exemptions on interest income, long-term capital gains (LTCG) and short-term capital gains (STCG), expansion of specified securities under the Fully Accessible Route (FAR), and streamlined investment norms.
Addressing External Headwinds and Fiscal Targets
The economy, they said, is facing headwinds from rising fuel and fertiliser import costs linked to the West Asia crisis, but growth momentum remains intact as domestic consumption stays resilient.
Sources said the government sees no immediate need for additional borrowing or supplementary spending approvals in the upcoming monsoon session of Parliament, with the FY27 Budget having already factored in uncertainties stemming from global trade tensions and tariff-related disruptions.
The growth momentum seen in the January-March quarter is continuing in the first quarter of FY27, sources said, adding that there has been no adverse impact on remittance inflows so far.
“We have no indications that remittances have come down so far,” sources added.
India’s economy grew at a higher pace of 7.7 per cent during 2025-26 as compared to 7.1 per cent in 2024-25, according to government data released on Friday.
The same day RBI slashed its FY27 GDP growth forecast to 6.6 per cent from 6.9 per cent, citing rising risks from the ongoing West Asia conflict, elevated energy prices, supply disruptions and weather-related uncertainties.
Sources also said the government’s fiscal deficit target of 4.3 pr cent of gross domestic product for the current financial year remains achievable despite higher import costs. The government is actively pursuing non-tax revenue measures, including disinvestment and asset monetisation, to support its fiscal position.
Disinvestment and Asset Monetisation Efforts
The government cut excise duty on petrol and diesel by Rs 10 per litre each at the end of March, foregoing over Rs 1.23 lakh crore of annual revenue, with a view to shielding domestic consumers from the surge in oil prices.
Even after the Rs 7.50 a litre increase in petrol and diesel prices in the second half of May, auto fuel rates remain way below cost, resulting in under-recoveries of about Rs 650 crore daily.
“DIPAM and DPE have a year-long pipeline and also a medium-term outlook on disinvestment and asset monetisation. I would hope the budgeted Rs 80,000 crore under this head exceeds the budget estimate,” a source said.
The source added that the government’s planned sale of its stake in IDBI Bank is expected to move forward.
Officials said a reassessment of macroeconomic conditions would be undertaken in July once April-June quarter economic data and the impact of the monsoon season become clearer.
High-frequency indicators continue to point to economic resilience, sources said, citing robust GST collections, improving private-sector investment trends and recent industry data showing a pickup in capital expenditure plans.
The government also intends to continue its reform agenda, with additional measures to attract foreign direct investment under consideration. Sources said there is no proposal to impose restrictions on capital outflows.
However, pressure is building on the subsidy front as global fertiliser prices rise.
According to sources, the fertiliser ministry has sought a 100 per cent increase in subsidy allocation for the current fiscal year. The FY27 Budget has provided Rs 1.71 lakh crore for fertiliser subsidies.
Asked about the impact of the duty hike on gold imports, sources said there has been a decline since then.
When asked about interest shown by insurance companies following the mandate for up to 100 per cent FDI in the sector, sources said some interest has been shown by players.
On inclusion of petrol and diesel under GST, the sources said, it would depend on states bringing the proposal to the GST Council.
The next GST Council meeting, which is expected soon, is likely to take up process reforms, sources said.
Background
The government plans to push ahead with reforms, including further measures to boost foreign investment, speeding up divestment and asset monetisation, as it seeks to preserve India’s growth momentum in the face of rising fuel and fertiliser import costs triggered by the West Asia crisis, government sources said on Tuesday.
They said that the country’s GDP growth momentum remains intact, with domestic consumption holding up.
“Growth is not under stress, but there are external challenges… Quarter after quarter, growth is showing momentum. Domestic economy is doing good, consumptions are not coming down…,” the sources said.
The stress that India is facing currently in terms of high oil and fertiliser import bills due to the closure of the Strait of Hormuz are “not just the normal kind of uncertainties”, they said.
Sources said the government would continue to pursue financial-sector reforms aimed at deepening capital markets and attracting long-term foreign capital.
There are steps required, and India will be taking them up steadily on boosting FDI flows into the country, sources said.
Recent measures to support the rupee and improve market accessibility are intended to strengthen India’s case for inclusion in major global bond indices, while helping broaden the investor base for domestic securities and lower borrowing costs over time.
Last Friday, the government introduced a series of reforms to increase Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs) to deepen the capital market.
Key measures included tax exemptions on interest income, long-term capital gains (LTCG) and short-term capital gains (STCG), expansion of specified securities under the Fully Accessible Route (FAR), and streamlined investment norms.
The economy, they said, is facing headwinds from rising fuel and fertiliser import costs linked to the West Asia crisis, but growth momentum remains intact as domestic consumption stays resilient.
Sources said the government sees no immediate need for additional borrowing or supplementary spending approvals in the upcoming monsoon session of Parliament, with the FY27 Budget having already factored in uncertainties stemming from global trade tensions and tariff-related disruptions.
The growth momentum seen in the January-March quarter is continuing in the first quarter of FY27, sources said, adding that there has been no adverse impact on remittance inflows so far.
“We have no indications that remittances have come down so far,” sources added.
India’s economy grew at a higher pace of 7.7 per cent during 2025-26 as compared to 7.1 per cent in 2024-25, according to government data released on Friday.
The same day RBI slashed its FY27 GDP growth forecast to 6.6 per cent from 6.9 per cent, citing rising risks from the ongoing West Asia conflict, elevated energy prices, supply disruptions and weather-related uncertainties.
Sources also said the government’s fiscal deficit target of 4.3 pr cent of gross domestic product for the current financial year remains achievable despite higher import costs. The government is actively pursuing non-tax revenue measures, including disinvestment and asset monetisation, to support its fiscal position.
The government cut excise duty on petrol and diesel by Rs 10 per litre each at the end of March, foregoing over Rs 1.23 lakh crore of annual revenue, with a view to shielding domestic consumers from the surge in oil prices.
Even after the Rs 7.50 a litre increase in petrol and diesel prices in the second half of May, auto fuel rates remain way below cost, resulting in under-recoveries of about Rs 650 crore daily.
“DIPAM and DPE have a year-long pipeline and also a medium-term outlook on disinvestment and asset monetisation. I would hope the budgeted Rs 80,000 crore under this head exceeds the budget estimate,” a source said.
The source added that the government’s planned sale of its stake in IDBI Bank is expected to move forward.
Officials said a reassessment of macroeconomic conditions would be undertaken in July once April-June quarter economic data and the impact of the monsoon season become clearer.
High-frequency indicators continue to point to economic resilience, sources said, citing robust GST collections, improving private-sector investment trends and recent industry data showing a pickup in capital expenditure plans.
The government also intends to continue its reform agenda, with additional measures to attract foreign direct investment under consideration. Sources said there is no proposal to impose restrictions on capital outflows.
However, pressure is building on the subsidy front as global fertiliser prices rise.
According to sources, the fertiliser ministry has sought a 100 per cent increase in subsidy allocation for the current fiscal year. The FY27 Budget has provided Rs 1.71 lakh crore for fertiliser subsidies.
Asked about the impact of the duty hike on gold imports, sources said there has been a decline since then.
When asked about interest shown by insurance companies following the mandate for up to 100 per cent FDI in the sector, sources said some interest has been shown by players.
On inclusion of petrol and diesel under GST, the sources said, it would depend on states bringing the proposal to the GST Council.
The next GST Council meeting, which is expected soon, is likely to take up process reforms, sources said.
