According to a report by Fitch Group, India's fiscal deficit is projected to rise to 4.5% of gross domestic product (GDP) in the fiscal year 2026-27 (FY27), surpassing the government's target of 4.3%. This increase is attributed to higher subsidy spending and economic support measures in response to the ongoing US-Iran conflict, which may prompt the government to enhance interventions to stabilize the economy. The Economic Stabilisation Fund, set at ₹1 trillion (roughly $12 billion USD), is expected to finance additional subsidies and temporary tax relief to mitigate rising input costs for businesses. Furthermore, the government may impose export restrictions on critical inputs like helium and sulphur to bolster domestic industries, including semiconductor manufacturing and fertiliser production. These measures could strain international trade relations and lead to complaints at the World Trade Organization.

In addition to fiscal concerns, India's unemployment rate is projected to rise to 7.0% in 2026, the highest in the Asia-Pacific region, according to Moody’s Analytics. This increase follows a rate of 6.9% in 2025. Inflation is also expected to rise to 4.5% in 2026, up from 2.2% in 2025, reflecting economic pressures that have begun to affect consumer prices. Retail inflation has already shown signs of increasing, with the Consumer Price Index (CPI) rising from 0.25% in October 2025 to 3.4% in March 2026. While India's exports have been buoyed by a global demand surge in electronics driven by artificial intelligence, analysts caution that this growth may be nearing a pause due to rising prices and hardware shortages.