Centre's FY27 fiscal deficit may exceed Budget target by Rs 1.2 lakh crore: SBI Research

Centre's FY27 fiscal deficit may exceed Budget target by Rs 1.2 lakh crore: SBI Research

Mumbai: The central government's fiscal deficit is likely to exceed the budget estimate by Rs 1.2 lakh crore in 2026-27, largely due to structural factors such as an increase in fertiliser, LPG and petroleum subsidy expenditure and the new GDP base impact, according to a report.

The projected fiscal deficit of 4.7 per cent uses the 2022-23 base, while the 4.3 per cent budget estimate was calculated based on the 2011-12 base.

The report said the excise cut is expected to incur a loss of Rs 1.1 lakh crore due to an increase of Rs 90,000 crore in fertiliser subsidy and around Rs 48,000 crore in petroleum/LPG subsidy.

The expected increase in the fiscal deficit is despite stronger-than-expected GST growth, better disinvestment receipts and a marginal cut in capital expenditure, the report added.

SBI Research said the Centre's wider fiscal deficit can be financed through government cash balances without increasing borrowings.

The report estimated cash balance (adjusted with Core liquidity) at October-end 2026 at Rs 8.5 lakh crore as compared to Rs 2.2 lakh crore a year ago, and it may stand at Rs 2.5 lakh crore by March-end 2027.

In H1 FY27 (as compared to H1 FY26), while both tax revenue and non-tax revenue receipts increased by 3.6-3.8 per cent, the total expenditure increased by 10.7 per cent. Consequently, the fiscal deficit (in actual Rs terms) has increased by 25 per cent to Rs 7.14 lakh crore, the report said.

SBI Research pitched for a layered long-term capital gains (LTCG) structure, which will generate additional revenue for the government.

The report said the exemption threshold should better reflect the widening retail investor base. Instead of a flat threshold amount (currently Rs 1.25 lakh), an inflation-linked threshold would be beneficial for investors.

Second, longer investment horizons could merit preferential treatment.

It added that LTCG taxation should be reviewed together with STT.

If the government increase STT by 50 per cent, then around Rs 45,000 crore extra revenue will be generated in FY28, the report said.

The projected fiscal deficit of 4.7 per cent uses the 2022-23 base, while the 4.3 per cent budget estimate was calculated based on the 2011-12 base.

The report said the excise cut is expected to incur a loss of Rs 1.1 lakh crore due to an increase of Rs 90,000 crore in fertiliser subsidy and around Rs 48,000 crore in petroleum/LPG subsidy.

The expected increase in the fiscal deficit is despite stronger-than-expected GST growth, better disinvestment receipts and a marginal cut in capital expenditure, the report added.

SBI Research said the Centre's wider fiscal deficit can be financed through government cash balances without increasing borrowings.

The report estimated cash balance (adjusted with Core liquidity) at October-end 2026 at Rs 8.5 lakh crore as compared to Rs 2.2 lakh crore a year ago, and it may stand at Rs 2.5 lakh crore by March-end 2027.

In H1 FY27 (as compared to H1 FY26), while both tax revenue and non-tax revenue receipts increased by 3.6-3.8 per cent, the total expenditure increased by 10.7 per cent. Consequently, the fiscal deficit (in actual Rs terms) has increased by 25 per cent to Rs 7.14 lakh crore, the report said.

SBI Research pitched for a layered long-term capital gains (LTCG) structure, which will generate additional revenue for the government.

The report said the exemption threshold should better reflect the widening retail investor base. Instead of a flat threshold amount (currently Rs 1.25 lakh), an inflation-linked threshold would be beneficial for investors.

Second, longer investment horizons could merit preferential treatment.

It added that LTCG taxation should be reviewed together with STT.

If the government increase STT by 50 per cent, then around Rs 45,000 crore extra revenue will be generated in FY28, the report said.