Centre's FY27 fiscal deficit may exceed Budget target by Rs 1.2 lakh crore, reach 4.7% of GDP: SBI Research

The Centre's fiscal deficit for 2026-27 could exceed the Budget Estimate by around Rs 1.2 lakh crore, with higher subsidy spending and lower tax receipts adding pressure on government finances, according to a report by SBI Research.

The Centre's fiscal deficit for 2026-27 could exceed the Budget Estimate by around Rs 1.2 lakh crore, with higher subsidy spending and lower tax receipts adding pressure on government finances, according to a report by SBI Research. The report estimates that the fiscal deficit could rise to 4.7 per cent of GDP, compared with the budgeted 4.3 per cent. The revised estimate uses the 2022-23 GDP base, while the Budget Estimate was calculated using the 2011-12 base. SBI Research attributed the increase to structural factors and the impact of the revised GDP base.

The estimated pressure includes a revenue loss of Rs 1.1 lakh crore due to the excise duty cut, an additional Rs 90,000 crore in fertiliser subsidy and around Rs 48,000 crore in petroleum and LPG subsidies. SBI Research said the government could manage the higher deficit through a combination of stronger cash balances and expenditure cuts, without necessarily increasing its borrowing programme.

"The only possible option with Government to contain fiscal deficit within Budget Estimates is to cut in expenditure," the report said, adding that the average expenditure reduction over the last three years was around Rs 45,000 crore. The report estimated the government's cash balance, adjusted for core liquidity, at around Rs 8.5 lakh crore at the end of October 2026, compared with Rs 2.2 lakh crore a year earlier. It expects the balance to moderate to around Rs 2.5 lakh crore by the end of March 2027.

Government borrowings have already declined by Rs 1.23 lakh crore due to switches and buybacks, bringing the current borrowing estimate to Rs 15.97 lakh crore against the budgeted Rs 17.2 lakh crore, the report said. The pressure on government finances is also visible in the first half of FY27. The fiscal deficit rose 24.7 per cent year-on-year to Rs 7.14 lakh crore, while total expenditure increased 10.7 per cent. Revenue receipts grew by 3.6 per cent during the period.

SBI Research expects stronger GST growth, higher disinvestment receipts and a marginal reduction in capital expenditure to partly offset the additional fiscal burden. However, it said expenditure rationalisation would remain an important option for keeping the deficit under control. (ANI)