The Centre’s fiscal deficit for the financial year 2026-27 (FY27) could exceed the budgeted target by approximately Rs 1.2 lakh crore, according to a recent report by SBI Research. The research division of the country’s largest public sector bank has attributed the expected increase to revenue reductions, higher subsidy spending and the impact of a revised GDP base.
According to the report, these factors could make it difficult for the government to keep the fiscal deficit within the budget estimates. SBI Research believes that reducing government expenditure may be one of the options available to limit the increase. Meanwhile, neighbouring countries such as Bangladesh and Pakistan have introduced significant austerity measures to control their fiscal deficits.
In its report, SBI Research estimated that the revenue loss from excise duty cuts would amount to around Rs 1.1 lakh crore. Additionally, fertilizer subsidies are expected to increase by Rs 90,000 crore, while petroleum and LPG subsidies could rise by approximately Rs 48,000 crore. The report also highlighted the impact of the revised GDP base on the fiscal deficit calculation.
Fiscal Deficit May Increase to 4.7% of GDP
SBI Research estimates that India’s fiscal deficit could reach 4.7% of GDP when calculated using the 2022-23 base year, compared with the budgeted estimate of 4.3%.
The fiscal deficit represents the difference between the government’s total expenditure and its receipts excluding borrowings. It indicates how much money the government needs to borrow to meet its spending requirements and is an important indicator of the country’s economic stability.
According to SBI Research, structural factors are expected to add around 0.32 percentage points to the fiscal deficit, while the change in the GDP base could contribute another 0.08 percentage points.
Together, these factors could increase the FY27 fiscal deficit estimate by 40 basis points, taking it from the budgeted 4.3% to 4.7% of GDP under the 2022-23 base calculation.
Government May Consider Expenditure Cuts
With the fiscal deficit likely to move above the budget target, controlling government spending could become an important consideration.
SBI Research expects expenditure reductions to be one of the possible measures for managing the situation. The report noted that the government has implemented average expenditure cuts of around Rs 45,000 crore over the past three years.
The agency also expects the government to rely on a stronger cash balance to finance the higher-than-expected fiscal deficit without increasing its overall borrowing requirements.
Higher GST Collections and Disinvestment May Provide Support
Apart from expenditure management, stronger Goods and Services Tax (GST) collections and higher disinvestment proceeds could help improve the government’s revenue position.
SBI Research expects GST growth to outperform earlier expectations, while better receipts from disinvestment could provide additional support to government finances. The report also anticipates a marginal reduction in capital expenditure.
For its estimates, SBI Research has assumed nominal GDP growth of 11% over FY26. Taking these factors into account, the agency expects the fiscal deficit to reach 4.7% of GDP on the revised 2022-23 base, compared with the budget estimate of 4.3% calculated using the earlier 2011-12 base.
Disclaimer
This article is intended for informational and educational purposes only. The figures and projections mentioned are based on the SBI Research report and reflect estimates rather than confirmed government outcomes. Actual fiscal deficit figures may differ depending on economic conditions, government revenue and expenditure. This article should not be treated as financial or investment advice.