Centre’s April–May fiscal deficit at 9.6% of FY27 target as spending outpaces revenue

The Centre’s fiscal deficit widened to 9.6% of the full-year Budget Estimate (BE) in the first two months of FY27 as government expenditure grew faster than receipts, according to official data released on Tuesday.

In absolute terms, the fiscal deficit stood at ₹1.62 lakh crore during April–May, compared with the full-year target of ₹16.96 lakh crore. In the corresponding period of FY26, the fiscal deficit was significantly lower at ₹13,163 crore, or 0.8% of the annual target.

The higher deficit was driven by a sharp rise in government spending alongside muted revenue growth.

According to Aditi Nayar, Chief Economist at ICRA Ltd, total expenditure during April–May FY27 increased 18% year-on-year while net tax receipts and non-tax revenues contracted by 1–2%, leading to a wider fiscal gap.

Government gross tax revenues grew a modest 1.8% during the first two months of FY27.

The slower growth was primarily due to a steep 20% decline in excise duty collections following reductions in duties on petrol and diesel. GST collections also witnessed a marginal contraction, largely because of higher Integrated GST (IGST) outflows compared with sizeable inflows during the same period last year. However, underlying trends remained mixed. Central GST (CGST) collections recorded a strong 22.8% expansion, while corporate tax and customs duty collections also posted healthy growth.

Income tax collections, however, increased only 6.8% during April–May, substantially below the 17.7% growth required for the government to meet its FY27 Budget target.

On the expenditure side, revenue expenditure rose sharply by 20.1%, supported by increased subsidy outgo and higher interest payments. Excluding these components, revenue spending still registered a healthy 14.5% growth.

Capital expenditure expanded 13.4% during the period, which economists expect to provide support to economic activity and GDP growth.

Looking ahead, ICRA said easing global energy prices following reduced geopolitical tensions in West Asia have improved India’s fiscal outlook. The rating agency now expects only a marginal overshoot in the Centre’s fiscal deficit relative to the FY27 target of 4.3% of GDP, compared with its earlier estimate of a 40 basis-point slippage that had assumed average crude oil prices of $95 per barrel for the year.