To be fair, the economy has reported fiscal surplus in 2 out of the last 7 months. However, both were cases when the revenue flows were front-loaded. In May, the entire inflow of RBI dividend was shown in a single month, which created a fiscal surplus.  Then again in September 2025, entire advance tax collections were shown in the month, which resulted in the tax inflows turning tepid in October. In fact, the net tax flows in October were just around 10% of the tax inflows in September, which was the key reason for the sharp spike in fiscal deficit. In October alone, the fiscal deficit has moved up from around 35% of GDP to 52.6% of GDP. That raises questions about full year fiscal deficit. 

The current fiscal has not just been about revenues, but also about spending. Having got to the brink of a war, India has been spending on defence purchases aggressively. Also, the US sanctions imposed on India have made the road tricky for the government. It had to offer a robust domestic market as an alternative to the export market, and the only way to do it was greater government capex spending. That seems to be showing results with the GDP growing at 8.2% in Q2FY26. However, revenues are likely to be under pressure and expenses are likely to be almost non-negotiable for the government. 

There are some clear downside risks in allowing the fiscal deficit to spiral. For FY26, the fiscal deficit for the full year is pegged at just 4.4% of GDP. That is the line of fiscal responsibility the government has consistently followed in the last 3 years. However, this year FY26 may be different since there is pressure on collections and the spending is relentless on revenue and capex front. On the downside, a higher fiscal deficit pulls India away from the path of fiscal prudence. Also, global investors and rating agencies are not likely to take a spillage in fiscal deficit too lightly. There could be outlook downgrades; but above all, spillage in fiscal deficit is most likely to hit the value of the Indian rupee. 

Despite the above risks, the government must take a fiscal chance in a crucial year. Yes, fiscal prudence does matter, but there are times when other things take priority. This is one such time, where the need to spend is paramount to meet defence needs and to boost growth via capex. The government can look to relax the fiscal deficit target to around 5% of GDP for the current year and the next year. That will give the Indian economy enough time to get back to its growth focus in nominal terms. The communication must be clear that this strategy is temporary. The government has limited choices. The answer is to take a bet on fiscal spillage to defend economic growth.