Global brokerage Jefferies has warned that India's non-defence capital expenditure growth could stall in FY27, as a slide in oil prices triggers an unexpected fiscal squeeze. According to reports from Jefferies, the brokerage estimates the combined fiscal impact at ₹1.25-1.5 lakh crore, a burden it expects to be shared between the central government, state governments, and oil marketing companies (OMCs). The government will be compelled to offset the shortfall by trimming expenditure elsewhere, with non-defence capex the most likely candidate, potentially leaving its growth flat year-on-year in FY27.
The oil price drop increases petroleum and fertiliser subsidies, shrinking oil tax revenues simultaneously. As reported by Jefferies, at current retail prices, oil marketing companies are at a breakeven of $85-87 per barrel, implying pump prices will need to rise further from present levels to restore viability. The brokerage also expects a renewed push on PSU disinvestments as a compensating fiscal measure to address the revenue shortfall.
Oil and Natural Gas Corporation (ONGC) reported disappointing Q4 FY26 results that reflect broader industry challenges. According to latest reports, ONGC shares fell over 3% after the company reported a 21% year-on-year profit decline and revenue nearing ₹36,000 crore. The company's EBITDA dropped 4.5% sequentially to ₹20,295 crore with margins narrowing to 56.5% from 67.4% in the previous quarter. ONGC notably missed EBITDA estimates for the seventh quarter in a row, with production affected by geological surprises from the 98/2 Field in Eastern Offshore. Despite the weak quarter, brokerages maintained bullish ratings with Jefferies keeping a 'Buy' rating and target price of ₹360, while Macquarie maintained an 'Outperform' rating with a ₹300 target price.
Jefferies is not alone in sounding fiscal alarms. According to reports, Morgan Stanley has estimated a potential fiscal slippage of 0.3-0.5% of GDP in FY27, driven by higher fertiliser subsidies and weaker tax collections, and has trimmed its India GDP growth forecast to 6.2%. Research firm BMI warns that India's fiscal deficit could overshoot the budgeted 4.3% target and widen to 4.5% of GDP in FY27, as higher subsidy spending reverses recent fiscal consolidation efforts that had reduced energy and fertiliser subsidies to around 1.5% of GDP.
