India’s economy remains on a sustained growth path supported by strong macroeconomic fundamentals, government officials said. Ebbing external pressures from the West Asia conflict have stabilized this trajectory, allowing for planned fiscal discipline.
The government has maintained its emphasis on capital expenditure despite an unexpected rise in fuel and fertiliser subsidies caused by a prolonged blockade at the Strait of Hormuz, a key sea route responsible for one-fifth of global energy supplies, the officials said, asking not to be named. The capex push has extended into the 2026-27 financial year. In April and May 2026, capital expenditure stood at ₹2.51 lakh crore compared to ₹2.21 lakh crore during the same period last year, registering a 14% jump.
This comes in addition to ₹1.23 lakh crore in assistance provided to state-run oil companies to protect domestic consumers from international oil price volatility. The subsidy on fertiliser is expected to more than double as the government continues to provide fertilisers to farmers at ₹300 per bag, even as the import cost per bag has surged to approximately ₹3,000, HT reported on June 10.
Also Read I Tech Tonic | We live in a disc-less world, intent on erasing history
The department of fertilisers has sought a 100% increase in its subsidy allocation to ₹3.42 lakh crore for fiscal 2027, doubling the initial budget estimate of ₹1.71 lakh crore. The surge is driven by global supply disruptions and price volatility from the West Asia conflict, which have sharply increased import costs.
Despite the rising subsidy bills, infrastructure spending is being front-loaded. “Early spending helps speed up projects, improve execution, and support demand in sectors linked to construction, steel, cement, transport, logistics and equipment,” an official said.
The capex allocation is directed toward core infrastructure. Roads, railways, telecommunications, defence, and other infrastructure sectors remain central to the public investment strategy, the official added.
“The railways is a major driver of the capex push. Indian Railways spent over ₹84,000 crore in April and May 2026, completing nearly 30% of its annual capex target. The focus is on safety upgrades, signalling, train protection systems, new lines, gauge conversion, and the doubling of lines,” he said.
Also Read I ShareChat, Indian rival of Meta, plans $400 million IPO next year: Report
While capital expenditure remains on track to boost the economy, revenue collections are robust enough to maintain the fiscal trajectory envisaged in the budget, officials said. “Strong revenue mobilisation shows healthy economic activity,” the official said, noting that gross tax revenue in April and May 2026 exceeded previous year figures despite global uncertainty.
Goods and Services Tax (GST) collections have also shown strong growth. In June 2026, gross GST collections rose 13.9% to ₹1.95 lakh crore, compared to ₹1.71 lakh crore in June 2025. Official data released on July 1 showed that GST collections in the first quarter of the current fiscal year (Q1 FY27) grew 8.4% year-on-year to ₹6.32 lakh crore despite external headwinds from the West Asia conflict.
“Fiscal discipline is expected to continue,” the official said. Despite temporary pressures from global energy prices, easing crude oil and fertiliser prices have supported the government’s commitment to its fiscal 2027 consolidation roadmap. The budget estimate for the government’s fiscal deficit target is 4.3% of the gross domestic product (GDP).
Direct tax collections also recorded a significant increase. Gross direct tax collections in the current fiscal year up to June 17 grew 12.46% year-on-year to approximately ₹6.10 lakh crore, driven by higher corporate and non-corporate tax revenues. Net direct tax revenue jumped 14.64% to ₹5.21 lakh crore during the same period.
In addition to direct tax and GST collections, the government expects to generate significant non-tax revenue. An HT report on June 10, quoting a senior official, stated that the fiscal deficit target of 4.3% of GDP for fiscal 2027 remains intact, supported by active non-tax revenue mobilisation through disinvestment and asset monetisation against a target of ₹80,000 crore.
Officials pointed to high-frequency indicators as evidence of robust economic activity. Trade and logistics remained strong, with e-way bill generation growing 10.9% year-on-year in May. Electricity demand also accelerated, rising from 3.5% growth in April to 11.2% in May, indicating increased industrial and commercial consumption.
Also Read I IBM’s 1-nanometer chip, Google’s AI policy pitch, and Chinese AI
Port traffic recovered, with growth rising from 2.4% in April to 6.6% in May, signalling higher trade volumes.
Automobile sales maintained momentum through the first quarter of fiscal 2027. Vehicle retail sales reached 2.61m units in April, marking the highest-ever April for the domestic auto retail market. May sustained the trend with 2.53m units, recording nearly 10% year-on-year growth. June continued the trajectory with steady demand across passenger vehicles, sport utility vehicles (SUVs), electric vehicles (EVs), two-wheelers, and commercial vehicles. Rural vehicle sales grew 7.8% in May, indicating sustained strength in the rural economy.
