DFS secretary says high-level banking panel to oversee balance sheet constraints
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V Vualnam, Expenditure secretary
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Disruptions to energy imports through the Strait of Hormuz amid the West Asia crisis, coupled with the government’s excise duty cuts on petrol and diesel, are putting pressure on India’s fiscal position, Expenditure Secretary in the Finance Ministry V Vualnam said on Friday, underscoring the government’s commitment to fiscal prudence.
“The fiscal stress is indeed very much a reality. But at the same time, the priority sectors, for example, the capex would really be a priority item which we would like to preserve and ensure that it continues at the budgeted level of ₹12 trillion,” Vualnam said at an event organised by Ashoka University. He said highways, railways, shipping, ports, and urban development sectors would be the focus areas for FY27 capex.
Stating that the current global uncertainties have created a “very challenging situation”, the expenditure secretary said the government had been “proactive” in tackling each situation with “agility”. “But there are also systemic constraints where you cannot really tackle off or wipe away all the impacts which are there,” he added.
To contain retail prices of petrol and diesel amid the ongoing West Asia conflict, the government has reduced the special additional excise duty, a move that risks fiscal slippage. The duty cut is estimated to result in a fiscal loss of ₹1.5 trillion in FY27.
Vualnam said the government’s emphasis on fiscal prudence and prioritised spending in the FY27 Budget was a wise decision, where the external volatility is almost impossible to envisage with “lots of possible stress points.”
The February Budget has pegged the fiscal deficit at 4.3 per cent of gross domestic product (GDP) for FY27 compared to 4.4 per cent for FY26.
When asked whether the Goldilock moment is behind for India, the expenditure secretary responded in the affirmative. “Yes, the situation has indeed changed. So, for instance, in this changed scenario, how the buoyancy on our gross tax receipts will be in the coming months is a big question. To all that, from where I sit, probably the quality of expenditure is what we will be fully focused upon.”
Since the beginning of the West Asia conflict on February 28, crude oil prices surged to a four-year high of $126 per barrel on Thursday, up from around $73 before the war.
Speaking at the same event, Department of Financial Services Secretary M Nagaraju said that the high-level committee on banking, announced in the FY27 Budget, is expected to review the sector with a focus on making it more effective, inclusive, and better aligned with India’s growth needs while maintaining financial stability.
“It will also likely examine intermediary costs, balance sheet constraints in banks, and areas where regulatory and institutional reforms can improve the flow of credit,” he said, adding that the intent is to strengthen the system, not dilute oversight.
Since banks are not the right vehicle for long-term financing, a well-functioning bond market is necessary to fill that gap, Nagaraju said. “It gives companies a direct route to long-term capital, improves price discovery, and creates competition that keeps borrowing costs honest across the system. Deepening the bond market is not just a task for any single institution. It requires coordinated action across regulators and across the government,” he added.
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