For FY25, the budget had targeted the fiscal deficit at ₹15.70 trillion, or around 4.8% of the nominal GDP. In absolute terms, the fiscal deficit was higher than the budget estimate at ₹15.77 trillion. Despite the fiscal deficit overshooting to 100.5% of the full year target, the fiscal deficit as a percentage of GDP remained well in limits. At 4.77% of GDP for FY25, the fiscal deficit was well under the 4.8% limit that has been outlined in the budget. Clearly, prudence played a part.

While the fiscal deficit shows the extent of borrowings to meet the deficit in the budget, the revenue deficit shows us how much of this deficit goes towards meeting the consumption and routine type of expenses. In other words, a high current account deficit is considered to be akin to borrowing for your morning breakfast; and that is not too healthy. However, the reduced focus on revenue spending in Q4 meant that the revenue deficit (GRD) for FY25 closed at just 92.9% of the full-year target. The GRD at just about 36.0% of the full year fiscal deficit is a comfortable situation as compared to the previous fiscal years. 

However, the truly gratifying story about the fiscal deficit is about how the center shifted the focus of budget allocations from revenue spending side to the capex spending side. For example, total expenditure of the Indian government was at 98.7% of the full year GDP. In contrast, the allocation to capex in the Union Budget stood at 103.3% of the budgeted allocation. This underlines the fact that the fourth quarter spending surge by the government was largely driven by the capex investments, which is truly appreciable. Afterall, this was done at the cost of revenue spending and also, despite the fact that the tax revenues were relatively tepid in FY25. 

If you though that this forebodes well for the fiscal management in FY26, then you have to think again. Tax revenues, both direct and indirect, are likely to be under pressure for better part of FY26. This would be due to the impact of the reciprocal tariffs imposed by Trump. These tariffs are likely to hit GDP growth and the inflation levels in India. Also, the fiscal deficit target fort FY26 is an aggressive 4.4% of GDP. Clearly, the center may have a very tough dilemma with respect to getting fiscal deficit down by another 40 bps. The ongoing tariff uncertainty and the hostile border situation in India, will make 4.4% fiscal deficit a veritably tall order in FY26!