The ongoing Iran conflict has stirred fresh volatility in global oil prices, shipping lanes and trade flows, complicating the operating environment for Indian businesses. Exporters are facing higher freight and insurance bills, manufacturers are grappling with swings in input costs and delays, while logistics networks are coming under pressure.
In response, the government has moved in recent weeks with a set of targeted steps aimed at cushioning the impact without turning to broad market intervention. The approach has centred on easing cash flow strains, lowering key costs and keeping supplies steady, offering a buffer to industry as it navigates an uncertain external backdrop.
Click here to track live developments on Iran war
Now, a unit of Fitch Ratings has said New Delhi is likely to roll out a set of policy measures to cushion the economy from the fallout of the US-Iran conflict, focusing on securing supplies, limiting costs for businesses and expanding financial support for firms.
"In response to the US-Iran conflict, we think New Delhi will introduce policies to redirect critical inputs to key industries, restrain business costs and improve financial support for firms," Fitch's arm BMI said.
Also Read | A shield for India Inc: How govt is blunting the Iran war shock
The Fitch unit said it was maintaining its forecast that the central government would post a fiscal deficit of 4.5% of GDP in FY2026/27. However, it added that risks to this outlook had increased on the upside.
Securing supplies for key sectors
The first strand of the response is expected to centre on maintaining the flow of energy and other essential inputs to core sectors of the economy.
New Delhi has already invoked the Essential Commodities Act to prioritise the supply of natural gas to households and key industries such as transport and fertiliser production. At the same time, state-run coal power plants have been asked to step up generation to make up for the hit from costlier imported energy.
Beyond that, BMI expects the government to weigh curbs on exports of scarce inputs such as helium and sulphur, both vital for semiconductor manufacturing. With India having invested significant resources into building its domestic chip ecosystem, there is likely to be a push to shield this still-nascent industry.
Sulphur is also a key ingredient in fertiliser production, making it crucial for agriculture, a sector that employs about 43% of India’s workforce. The government is therefore likely to try to keep disruptions to a minimum. Even so, any move to restrict exports could strain relations with trading partners and may invite complaints at the World Trade Organization.
The second set of measures is aimed at containing rising costs for businesses affected by disruptions linked to the Strait of Hormuz.
The government has proposed a Rs 1 lakh crore Economic Stabilisation Fund, which BMI estimates will add about 0.1% of GDP to fiscal spending in FY2026/27. The funds are likely to be used to expand subsidies on energy and fertilisers.
Also Read: Economic Stabilisation Fund will help govt respond better, says Sitharaman
In recent years, spending on such subsidies had been brought down to around 1.5% of GDP as part of fiscal consolidation efforts. Given the importance of these inputs, BMI expects this share to increase in the coming financial year.
The fund may also be used to support temporary tax cuts. The government has already waived customs duties on key petrochemical products in the second quarter of 2026. This is expected to benefit sectors such as pharmaceuticals, textiles, paints and toys.
In addition, temporary tax concessions have been introduced for firms in Special Economic Zones selling into India’s domestic market. These steps are aimed at making locally produced goods more competitive against imports and easing cost pressures.
The third element involves expanding financial support for companies, particularly smaller businesses.
According to local media reports cited by BMI, officials are working on a ₹2-2.5 trillion credit guarantee scheme targeted at small and medium enterprises. Details remain limited, but the scheme could help protect employment at scale.
SMEs were estimated to support about 45 million jobs in FY2022/23, the most recent year for which data is available. Supporting these firms could also have wider economic effects, as lower-income households tend to spend a larger share of their earnings, boosting demand elsewhere in the economy.
The impact on public finances will depend on how the scheme is structured and whether guarantees are eventually called.
BMI said it continues to project a fiscal deficit of 4.5% of GDP, while recognising that the policy response to the Iran conflict could put pressure on government finances.
At the same time, Finance Minister Nirmala Sitharaman has told parliament that the government will stick to its fiscal deficit target of 4.3% of GDP.
The report said the government is likely to continue pursuing longer-term fiscal consolidation. To manage spending, New Delhi may choose to defer some energy-intensive infrastructure projects to the next financial year while accommodating the immediate costs of its response.
In response, the government has moved in recent weeks with a set of targeted steps aimed at cushioning the impact without turning to broad market intervention. The approach has centred on easing cash flow strains, lowering key costs and keeping supplies steady, offering a buffer to industry as it navigates an uncertain external backdrop.
Click here to track live developments on Iran war
Now, a unit of Fitch Ratings has said New Delhi is likely to roll out a set of policy measures to cushion the economy from the fallout of the US-Iran conflict, focusing on securing supplies, limiting costs for businesses and expanding financial support for firms.
"In response to the US-Iran conflict, we think New Delhi will introduce policies to redirect critical inputs to key industries, restrain business costs and improve financial support for firms," Fitch's arm BMI said.
Also Read | A shield for India Inc: How govt is blunting the Iran war shock
The Fitch unit said it was maintaining its forecast that the central government would post a fiscal deficit of 4.5% of GDP in FY2026/27. However, it added that risks to this outlook had increased on the upside.
Securing supplies for key sectors
The first strand of the response is expected to centre on maintaining the flow of energy and other essential inputs to core sectors of the economy.New Delhi has already invoked the Essential Commodities Act to prioritise the supply of natural gas to households and key industries such as transport and fertiliser production. At the same time, state-run coal power plants have been asked to step up generation to make up for the hit from costlier imported energy.
Beyond that, BMI expects the government to weigh curbs on exports of scarce inputs such as helium and sulphur, both vital for semiconductor manufacturing. With India having invested significant resources into building its domestic chip ecosystem, there is likely to be a push to shield this still-nascent industry.
Sulphur is also a key ingredient in fertiliser production, making it crucial for agriculture, a sector that employs about 43% of India’s workforce. The government is therefore likely to try to keep disruptions to a minimum. Even so, any move to restrict exports could strain relations with trading partners and may invite complaints at the World Trade Organization.
Containing costs through subsidies and tax relief
The second set of measures is aimed at containing rising costs for businesses affected by disruptions linked to the Strait of Hormuz.
The government has proposed a Rs 1 lakh crore Economic Stabilisation Fund, which BMI estimates will add about 0.1% of GDP to fiscal spending in FY2026/27. The funds are likely to be used to expand subsidies on energy and fertilisers.
Also Read: Economic Stabilisation Fund will help govt respond better, says Sitharaman
In recent years, spending on such subsidies had been brought down to around 1.5% of GDP as part of fiscal consolidation efforts. Given the importance of these inputs, BMI expects this share to increase in the coming financial year.
The fund may also be used to support temporary tax cuts. The government has already waived customs duties on key petrochemical products in the second quarter of 2026. This is expected to benefit sectors such as pharmaceuticals, textiles, paints and toys.
In addition, temporary tax concessions have been introduced for firms in Special Economic Zones selling into India’s domestic market. These steps are aimed at making locally produced goods more competitive against imports and easing cost pressures.
Credit support for firms and jobs
The third element involves expanding financial support for companies, particularly smaller businesses.
According to local media reports cited by BMI, officials are working on a ₹2-2.5 trillion credit guarantee scheme targeted at small and medium enterprises. Details remain limited, but the scheme could help protect employment at scale.
SMEs were estimated to support about 45 million jobs in FY2022/23, the most recent year for which data is available. Supporting these firms could also have wider economic effects, as lower-income households tend to spend a larger share of their earnings, boosting demand elsewhere in the economy.
The impact on public finances will depend on how the scheme is structured and whether guarantees are eventually called.
Balancing support with fiscal discipline
BMI said it continues to project a fiscal deficit of 4.5% of GDP, while recognising that the policy response to the Iran conflict could put pressure on government finances.
At the same time, Finance Minister Nirmala Sitharaman has told parliament that the government will stick to its fiscal deficit target of 4.3% of GDP.
The report said the government is likely to continue pursuing longer-term fiscal consolidation. To manage spending, New Delhi may choose to defer some energy-intensive infrastructure projects to the next financial year while accommodating the immediate costs of its response.
