The prolonged turmoil in Iran has caused new unpredictability in international trade flows, shipping lanes, and oil prices, making it more difficult for Indian enterprises to operate. Logistics networks are under strain, manufacturers are dealing with fluctuations in input costs and delays, and exporters are dealing with increased freight and insurance expenses.
In response, the government has taken a number of focused actions in recent weeks to lessen the effects without resorting to extensive market intervention. In order to provide industry with a buffer as it navigates an uncertain external environment, the strategy has focused on reducing cash flow pressures, cutting essential expenses, and maintaining regular supplies.

According to a division of Fitch Ratings, New Delhi is now expected to implement a number of policy initiatives to protect the economy from the consequences of the US-Iran conflict, with an emphasis on boosting financial support for enterprises, restricting costs for businesses, and securing supplies.We believe New Delhi will implement measures to reroute vital inputs to important industries, control business expenses, and enhance financial support for businesses in response to the US-Iran dispute," stated BMI, a division of Fitch.
The central government is expected to report a budget deficit of 4.5% of GDP in FY2026–2027, according to the Fitch unit. It did warn, though, that there were more upside risks associated with this prediction.

Obtaining supply for important industries
Maintaining the flow of electricity and other vital inputs to the economy's core sectors is anticipated to be the primary focus of the reaction.
The Essential Commodities Act has already been used by New Delhi to provide natural gas supplies to homes and important industries like transportation and fertiliser manufacturing top priority. State-run coal-fired power facilities have also been encouraged to increase production in order to offset the impact of more expensive imported energy.
Beyond that, BMI anticipates that the government will consider limiting exports of limited resources like sulphur and helium, which are both essential for the production of semiconductors. India has spent a lot of money developing its own semiconductor ecosystem, so there will probably be pressure to protect this still-developing sector.Sulphur is essential for agriculture, which employs roughly 43% of India's labour force, as it is also a major component in the manufacturing of fertilisers. As a result, the government will probably make an effort to minimise disruptions. However, any attempt to limit exports could cause tension with trading partners and lead to complaints to the World Trade Organization.
Reducing expenses with tax breaks and subsidies
The second set of actions aims to control growing expenses for companies impacted by Strait of Hormuz-related interruptions.
According to BMI, the government's projected Rs 1 lakh crore Economic Stabilisation Fund will increase fiscal spending in FY2026–2027 by roughly 0.1% of GDP. The money will probably be used to increase fertiliser and electricity subsidies.

As part of fiscal consolidation measures, spending on these subsidies has been reduced to about 1.5% of GDP in recent years. BMI anticipates that this share will rise in the upcoming fiscal year due to the significance of these inputs.
Temporary tax cuts may also be supported by the fund. In the second quarter of 2026, the government waived customs charges on important petrochemical products. It is anticipated that industries including toys, paints, textiles, and pharmaceuticals will gain from this.
Additionally, companies operating in Special Economic Zones that sell to India's domestic market are now eligible for temporary tax breaks. These actions are intended to reduce cost constraints and increase the competitiveness of locally produced items against imports.

Credit assistance for businesses and employment
Increasing financial assistance for firms, especially smaller ones, is the third component.
Officials are developing a ₹2–2.5 trillion credit guarantee program for small and medium-sized businesses, according to local media sources that BMI referenced. Although there are still few details available, the plan may help safeguard jobs on a large scale.
The most recent year for which data is available, FY2022–2023, saw an estimated 45 million jobs supported by SMEs. Because lower-income households typically spend a bigger portion of their income, supporting small businesses may also have broader economic implications by increasing demand elsewhere in the economy.
The scheme's structure and whether or not guarantees are ultimately called will determine the effect on state budgets.

Finding a balance between financial restraint and assistance
Although acknowledging that the policy reaction to the Iran crisis may put pressure on government finances, BMI stated that it still projects a fiscal deficit of 4.5% of GDP.
The administration will adhere to its fiscal deficit target of 4.3% of GDP, Finance Minister Nirmala Sitharaman informed parliament at the same time.
The government is probably going to keep pursuing longer-term fiscal consolidation, according to the article. While covering the immediate expenses of its response, New Delhi may decide to postpone some energy-intensive infrastructure projects until the following fiscal year in order to control spending.