As the government grapples with these challenges, the impact on economic stability could be significant, particularly as it aims to sustain momentum heading into the next fiscal year.

With decline in tax revenue and higher expenditure, the government’s fiscal deficit in value term nearly doubled in April, data released by Controller General of Accounts (CGA) showed on Monday. However, the government managed to close the fiscal year 2025-26 (FY26) with fiscal deficit of 4.4 per cent, in line with revised estimates.

Fiscal deficit is the gap between income and expenditure of the government

Data from CGA showed that while revenue receipts were down by over 21 per cent in April, expenditure rose by over 23 per cent in the said month. This resulted in fiscal deficit rising by around 94 per cent in April itself. As a percentage of budget estimates it was over 21 per cent as against over 11 per cent during corresponding period of last fiscal.

Aditi Nayar, Chief Economist of ICRA, said while fiscal risks abound in the form of higher than budgeted fertilizer and LPG subsidies, and shortfalls in excise duty, corporate tax and dividend from the OMCs, a portion of the stress would be absorbed by higher import duty on gold and silver and the balance in the Economic Stabilisation Fund.

“While we estimate the slippage in the fiscal deficit at around 0.3 per cent of GDP relative to the FY2027 BE, the incremental borrowing requirement would be softened by the higher opening cash balance vis-a-vis the BE, partly benefitting from the overshooting in small savings collections in FY2026,” she said.

Fiscal Deficit for FY26

The government has achieved its fiscal deficit target of 4.4 per cent of the GDP for 2025-26. The fiscal deficit for the previous financial year was estimated to be at ₹15,68,936 crore, which was revised down to ₹15,58,492 crore, as presented to Parliament in February by Finance Minister Nirmala Sitharaman.

As per the CGA data, the government managed to collect ₹33.42 lakh crore revenue, or 98.8 per cent of the revised Budget Estimates (RE). The central government’s expenditure during 2025-26 was ₹49.64 lakh crore, or 98.8 per cent of the RE.

According to DK Srivastava, Chief Policy Advisor, EY India, what is remarkable is that fiscal deficit has been lowered in absolute terms in 2025-26 to ₹15.2 lakh crore from ₹15.8 lakh crore in 2024-25. The adjustment required relative to GDP (2022-23 series) in 2025-26 was 60 basis points from a level of 5 per cent of GDP in 2024-25. This was achieved in spite of a lowering of GoI gross tax buoyancy in 2025-26 at 0.7 which occurred due to extensive Personal Income Tax and GST reforms.

“Going forward, meeting the 2026-27 fiscal deficit target of 4.3 per cent of GDP may be supported by the government’s continued focus on enhancing tax revenue buoyancy, to meet or exceed the budgeted level of 0.8,” Srivastava said. While some moderation in union excise duty revenues is anticipated due to the partial absorption of global crude price increases, this also reflects a proactive approach to cushioning domestic impacts.

“In this context, the focus may remain on accelerating capital expenditure growth to at least 11.5 per cent in 2026-27 (as budgeted over the revised estimate), underscoring the government’s commitment to sustaining strong economic momentum,” Srivastava concluded.

Published on June 1, 2026