FISCAL DEFICIT FOR FY26 ON TARGET AT 4.4% OF GDP

FISCAL DEFICIT FOR FY26 ON TARGET AT 4.4% OF GDP

As is the norm, the fiscal deficit for March 2026 and for the full fiscal year 2025-26, was published by the Controller General of Accounts (CGA) on 01-June 2026. The last fiscal deficit announcement for the fiscal year takes longer as the government also waits for the final nominal GDP data to be able to calculate the fiscal deficit to GDP ratio. At a macro level, the government has managed to defend fiscal deficit at 4.4% of GDP for FY26.

For FY26, while the tax revenues were slightly below the revised target, the non-tax revenues and the non-debt capital flows were above estimates. Non-tax revenues essentially includes RBI dividends, PSU dividends, and the receipts from monetization of infrastructure assets. Non-debt capital receipts are in the form of PSU disinvestments. On the spending side, the capital and revenue spending were slightly below targets.

FISCAL DEFICIT STORY FOR FY26

Here are government receipts, expenditures, and fiscal deficit for 11 months of FY26 ending February 2026. The table also shows the percentage of target reached for each item.

Data Source: Controller General of Accounts (# - 12 months data)

Before we get into key takeaways from the fiscal deficit update for FY26, a quick point to note. Actual fiscal deficit for FY26 was 2.5% lower than target. However, the ratio of fiscal deficit to GDP has still been held at 4.4% of GDP. That means, the final nominal GDP for FY26 should be below the revised estimates presented in the February 2026 Union Budget.

That could be attributed to the supply chain constraints that the Indian economy was exposed to, on account of the turmoil in the Middle East and West Asia. The supply chain impact on oil, gas, and chemicals had disrupted production in several industries in March.

WHAT WE READ FROM THE FISCAL DEFICIT UPDATE FOR FY26

Here are key takeaways from the updated fiscal deficit story for FY26.

It is commendable that the fiscal deficit has been held at 4.4% of GDP, despite the pressures from oil and gas prices in the month of March. However, since these supplies are generally contracted, the real impact of these supply chain constraints may only be visible from the April 2026 data onwards. We have to wait and watch.

If one looks at the government department-wise budgets and actual expenditure, the revenue spending has seen spillage for the departments of fertilizers and consumer affairs. That is not surprising considering that the spike in prices of Urea and LPG had led to substantial subsidies offered for the month of March 2026.

Like in the previous quarters, the government has booked the full advance tax collections by March 15, 2026 in the current year. This allows front-ending of next-year’s tax collections. As in previous months, one would get to see pressure on tax revenues in April and May 2026. The ₹2.87 trillion RBI dividend will partly make up for that.

On an overall reading, while the fiscal deficit has been in check, the revenue deficit has shown some spillage. That is more due to a late surge in fertilizer and fuel subsidies by the government. Lower capex (compared to previous years) and lower effectiveness of capex spending remain the big challenges for the Indian government.

As India enters a critical FY27, a few concerns still remain on the fiscal front.

FISCAL CONCERNS FOR FY27, AND BEYOND

There are some key concerns that the government will have to look into for FY27.

Bulk of the high-value income tax refunds for FY2024-25 are yet to be paid out. That is likely to impact the net tax collections in FY27.

With oil prices likely to remain above $85/bbl, the government subsidy for fuel and fertilizers is likely to continue. That will put pressure on the fiscal deficit.

The government has to urgently review the size of its capex and also the efficacy of its capex. Specifically, they need to examine the state capex transfer model being followed.

With growth and consumption spending critical for domestic demand, the centre will have to walk the thin line between foregoing taxes and enforcing tax collections.

With the numerous headwinds; holding fiscal deficit at the budgeted 4.3% of nominal GDP in FY27 is likely to be a lot more challenging for the Indian government!