Fiscal deficit in H1 rises to 42.1% of FY27 target on higher capex, subsidies

Agencies

Fiscal deficit in H1 widens to 42.1% of target on higher spending, subsidies

The deficit widened as total expenditure increased 10.7% year-on-year and government spending on major subsidies rose 10.1% to ₹2.23 lakh crore in April-September, according to data released by the Controller General of Accounts. It assumes significance as the government has reduced its market borrowing for this fiscal by nearly ₹1.2 lakh crore.

Spending on major subsidies increased to ₹2.23 lakh crore during April-September from ₹2.02 lakh crore a year ago, with food subsidy increasing 16% year-on-year while petroleum subsidy fell almost 83%.

Tax, revenue

The Centre's gross tax revenue rose 6.1% year-on-year in April-September, despite a sharp fall in excise duty collection owing to the excise duty cuts on petrol and diesel, as well as sluggish growth in personal income tax collection.

Government expenditure reached ₹25.49 lakh crore by September, equivalent to 47.7% of the full-year budget estimate. "The Government of India has received ₹18.35 lakh crore (50.3% of corresponding BE 2026-27 of Total Receipts) up to September, 2026," the finance ministry said in a statement.

This comprises ₹12.76 lakh crore of tax revenue, ₹4.8 lakh crore of non-tax revenue and ₹78,602 crore of non-debt capital receipts. The central government's net tax revenue was ₹12.76 lakh crore, or 44.5%, of this fiscal's BE in September. The collection was 43.3% in the year-ago period. The ministry said that ₹6.99 lakh crore has been transferred to states as devolution of share of taxes, which was ₹67,658 crore higher than in the previous year.

"With the upsurge in first half, the government of India will need to curtail its revenue deficit in second half of FY27 relative to the levels seen in the year-ago period, in order to meet its target for the fiscal, which may prove challenging," said Aditi Nayar, chief economist, ICRA. Nayar cautioned that given the steep asking rates of about 28-38% for the second half, a miss on both personal income tax and excise mop-up seems likely. However, this would be partly offset by excess customs duty collection, which expanded by a strong 16.5% in the first half.

On the expenditure side, the Centre's capex declined almost 3% year-on-year in September, after contracting around 30% in August. While growth in revenue expenditure improved to 13.3% in the second quarter from 7.4% in the first quarter, non-interest non-subsidy revenue expenditure rose 1.3% in the quarter. Overall, revenue expenditure expanded 10% in April-September, implying that it needs to increase 5.5% in the second half to meet the budget estimates for the fiscal.

The capex growth tapered to 2.8% in the second quarter of the financial year from 23.7% in the first quarter, which may weigh on GDP growth outcomes. "With capex rising by 12.7% in H1 FY2027, the asking rate for H2 stands at a considerable 16.2%," Nayar said. With global energy prices remaining at elevated levels, ICRA expects an overshooting on fertiliser and fuel subsidies and a shortfall on the receipts side.