Centre's H1 fiscal deficit widens to 42.1% of FY27 target

The central government's fiscal deficit in the first half of the current financial year accounted for 42.1% of the full year target amidst weak revenue growth and higher expenditure on subsidies and capital investment, data released by the Controller General of Accounts (CGA) on Friday showed.

In the same period a year ago, the Centre's fiscal deficit accounted for 36.5% of the relevant Budget target. In absolute terms, the fiscal deficit was Rs 7.14 lakh crore during April-September, up 25% year-on-year. In September, the Centre had a fiscal deficit of Rs 4,164 crore against a fiscal surplus of Rs 25,030 crore a year ago.

The government, in its Budget, set the FY27 fiscal deficit target at Rs 16.96 lakh crore, or 4.3% of GDP. Based on India's revised national accounts series, under which the size of the nominal GDP reduced, the fiscal deficit target for FY27 becomes 4.5% of GDP.

Some economists expect the government to miss the fiscal deficit target for the current year by 10-20 basis points because of the impact of the war in West Asia. But higher-than-budgeted nominal GDP growth and buffers in the form of the Economic Stabilisation Fund should provide some cushion to the Centre.

"With global energy prices remaining at elevated levels, ICRA expects an overshooting on the fertiliser and fuel subsidy front, as well as a shortfall on the receipts side, which is expected to result in a modest fiscal slippage of around Rs. 1.3-1.4 lakh crore relative to the FY27 target," said Aditi Nayar, chief economist at ICRA.

"However, this could be partly absorbed by expenditure savings, which had amounted to as much as Rs. 1.6-1.7 lakh crore during FY25-FY26. Additionally, a fiscal slippage may not necessarily manifest into higher borrowings, given that small savings inflows have surged by 54% YoY in H1 FY27 and are set to overshoot the budgeted levels for FY27," Nayar said.

The government spent Rs 6.55 lakh crore on capital investments in the six months to September, 12.7% higher than the same period a year ago. The Centre has met 53.6% of the full year target for capex. In September, however, capex fell 3% year-on-year to Rs 1.45 lakh crore.

With capex rising by 12.7% in the first half of FY27, the asking rate for October-December stands at a considerable 16.2% to meet the full year target of Rs 12.22 lakh crore.

Revenue expenditure increased 10% on year to Rs 18.95 lakh crore in April-September, accounting for 45.9% on the full year target. A near 12% rise in interest payments and a 10% increase in subsidies pushed the Centre's revenue expenditure higher in first half of the year.

In September, revenue expenditure jumped 20% on year to Rs 3.27 lakh crore with interest payments surging 165% to Rs 1.31 lakh crore. To meet the full year target of Rs 41.25 lakh crore, revenue expenditure needs to rise just 5.5% in October-March.

The government's revenues have lagged the pace of expenditure so far this year, with net tax revenue rising just 3.8% to Rs 12.76 lakh crore during April-September.

The gross tax revenue rose 6.1% in April-September to Rs 19.80 lakh crore with excise duty collections falling 22% because of the excise duty cuts on petrol and diesel earlier in the year. Corporate tax collections rose sharply at 21% to Rs 5.66 lakh crore while personal income tax collections were up just 6.7% at Rs 6.31 lakh crore.

"Given the steep asking rates of around 28-38% for H2 FY27, a miss on both these accounts seems likely, although this would be partly offset by excess collections on the customs duty front, which has expanded by a strong 16.5% in H1 FY27," Nayar said. Securities transaction tax (STT) collections also rose sharply, growing 53% year-on-year to Rs 40,273 crore in April-September.