Fiscal deficit widens to 18.2% of FY27 target by June as spending picks up

New Delhi: India’s fiscal deficit reached 18.2% of the full-year budget estimate (BE) by the end of June—or ₹3.08 trillion—compared with 17.9% a year earlier, according to the latest monthly accounts released by the Controller General of Accounts (CGA) on Friday.

The deficit, which nearly doubled from 9.6% at the end of May, reflected higher government spending towards the end of the quarter even as revenue collections remained broadly on track.

The Centre has budgeted a fiscal deficit of ₹16.96 trillion—4.3% of GDP—for FY27 and is expected to rely on stronger tax collections and non-tax revenues over the rest of the year to stay within the target.

The fiscal position was also supported by the Reserve Bank of India’s (RBI’s) record dividend of ₹2.87 trillion, alongside stronger revenue mobilization and front-loaded expenditure.

The monthly accounts showed that the government received ₹10.49 trillion as total receipts in April-June, including ₹6.37 trillion in tax revenue (net to Centre), ₹3.78 trillion in non-tax revenue and ₹35,003 crore in non-debt capital receipts.

Total receipts, which accounted for 28.7% of the budget estimate for FY27, increased 11.5% over Q1 of FY26, led by a 17.8% rise in net tax revenue, even as non-tax revenue grew 1.2%.

Economists caution against reading too much into the first quarter numbers as direct tax collections, RBI and public sector enterprise dividends, and GST settlements are unevenly distributed through the year.

D.K. Srivastava, chief policy advisor, EY India, said the Q1 data showed relatively buoyant performance of direct taxes, especially corporate income tax, which grew 19.7%.

“In contrast, GST revenues continue to contract by 11%, resulting in an overall 7.6% contraction in indirect taxes,” he said. “The first-quarter numbers also indicate that the Centre has maintained its emphasis on capital expenditure, while the fiscal position is likely to evolve as major tax inflows and dividend receipts accrue over the rest of the financial year.”

Government spending picks up

The government’s spending remained elevated during the first quarter. Total expenditure stood at ₹13.57 trillion—revenue expenditure of ₹10.17 trillion and capital expenditure of ₹3.4 trillion—or 25.4% of the budget estimate, compared with 24.1% in the year-ago period.

On a year-on-year basis, total expenditure increased 11%, with capital expenditure rising 23.7% to ₹3.4 trillion, significantly outpacing the 7.4% increase in revenue expenditure.

Even so, economists said the fiscal position remained comfortable.

“The improvement in the fiscal deficit position for June year-to-date was led by better revenue and slower revenue expenditure growth,” said Madhavi Arora, chief economist at Emkay Global Financial Services. “Encouragingly, capital expenditure momentum has improved, with key sectors (railways, defence) seeing strong growth.”

Arora said the Centre’s fiscal deficit position was manageable, and “we do not expect slippage versus the FY27 budget estimate fiscal deficit-to-GDP ratio of 4.3%, with the peak of the Middle East crisis (and oil prices) now behind us”.

Within revenue expenditure, fertilizer subsidies stood out. The food subsidy expenditure in the quarter reached ₹49,864 crore, or 22% of the annual allocation. Urea subsidy spending reached ₹53,034 crore, or 45% of the full-year allocation, even though the kharif sowing season is still underway and the rabi season is yet to begin.

“Higher spending on urea subsidy reflects the impact of elevated global fertilizer prices following the West Asia conflict,” said Binod Anand, agricultural economist and member of the Centre’s High-Powered Committee on MSP, crop diversification and natural farming.

“Also, the early utilization of nearly half the annual allocation suggests that the government may have to provide additional budgetary support later in the year if elevated global fertilizer prices persist,” Anand added.

Interest payments amounted to ₹3.46 trillion, or 24.7% of the annual budget estimate, lower than 30.2% in the corresponding period last year. The revenue deficit stood at ₹2,578 crore, while the Centre posted a primary surplus of ₹38,581 crore, compared with a primary surplus of ₹1.05 trillion in the year-ago period.