Quote on GoI Fiscal by Aditi Nayar, Chief Economist, ICRA Ltd
Below the Quote on GoI Fiscal by Aditi Nayar, Chief Economist, ICRA Ltd
The Government of India's (GoI's) fiscal deficit expectedly widened to Rs. 7.1 trillion during April-August or 5M FY2027 (41.9% of BE) from Rs. 6.0 trillion (39.4% of PA) in the year ago period, led by a higher revenue deficit, as well as double digit capex expansion. Given the revenue shortfall anticipated on the taxes side as well as additional subsidy requirements on the fuel and fertiliser front, ICRA estimates the fiscal deficit to overshoot the FY2027 BE by ~Rs. 1.3-1.4 trillion. However, this could be absorbed by expenditure savings, which amounted to Rs. 1.6-1.7 trillion during FY2025-2026. Small savings inflows have remained quite strong and are likely to overshoot the budgeted levels for FY2027. This would provide some cushion to the GoI to raise additional borrowings in H2 FY2027 beyond what is indicated, even if there is a fiscal slippage.
The sharp rise in the GoI's fiscal deficit in the month of August 2026 was led by the release of an extra tranche of devolution to the states in August 2026, as opposed to the release of a double tranche in July in 2025.
The GoI’s gross tax revenues rose by a modest 6.5% YoY in 5M FY2027, amid the sharp 23% contraction in excise duty collections, owing to the excise duty cuts on petrol and diesel earlier in the fiscal, even as most other taxes posted a double-digit growth during this period.
Given the FY2027 BE and the provisional 5M trends, the GoI’s GTR needs to expand by 10.9% YoY during September-March FY2027, slightly lower than our expectation of nominal GDP growth. This warrants a 21% growth in income tax collections, albeit on a low base, and a 31% expansion in excise duty collections, both of which are unlikely to materialise, leading to a miss on these accounts. However, this would be partly offset by higher-than-budgeted collections on the customs duty front, aided by the duty hikes on gold and silver imports.
On the expenditure side, the GoI’s capex declined by ~30% YoY in August 2026, after surging by ~60% in June-July 2026. While this tempered the capex growth to 18% during 5M FY2027, it nevertheless remained quite robust. Revenue expenditure, on the other hand, grew by 8% during 5M FY2027, amid a sharp 24% expansion in subsidy payouts, even as interest payments declined by ~3% during this period. Excluding interest payments and subsidies, revenue expenditure rose by a robust 12.5% during this period.
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