Fiscal Deficit Jumps to Rs 1.62 Trillion in First Two Months of FY27
The Centre's fiscal deficit for the first two months of FY27 stood at Rs 1.62 trillion, representing 9.6 per cent of the full-year Budget Estimate, according to a report by Equirus Securities. This marks a sharp deterioration compared to Rs 0.1 trillion in the same period of FY26, driven by a significant rise in subsidy and interest outgo alongside muted revenue growth.
The report attributed the widening deficit to an approximate 18 per cent year-on-year increase in total expenditure, while total receipts declined by about 2 per cent due to a fall in both tax and capital receipts.
Capex Remains Resilient Despite Fiscal Strain
Capital expenditure (capex) rose 13.4 per cent year-on-year in April-May, accounting for 20.5 per cent of the FY27 Budget Estimate. The growth was led primarily by spending on railways and transfers to states, though the pace of frontloading moderated compared to the previous year.
Revenue Growth Weakens as Tax Collections Falter
Gross tax revenue increased by only 1.8 per cent year-on-year, as GST and excise collections contracted. While customs and corporate tax collections posted robust growth, the report cautioned that customs revenue could soften if crude oil prices continue to decline. Income tax collections also remained subdued, raising concerns over the government's ability to meet its annual targets.
Subsidies Pose Biggest Risk to Fiscal Outlook
The report highlighted that subsidy expenditure remains the biggest risk to the fiscal outlook. Fertiliser subsidies surged amid elevated global input prices linked to the West Asia conflict, while food subsidies recorded a sharp increase because of higher procurement and minimum support prices. Interest payments also continued to rise during the period.
Officials have flagged that food and fertiliser subsidies could together reach Rs 6 trillion against a Budget Estimate of Rs 3.98 trillion, an overshoot that would likely force a consolidation in capex or other discretionary spending later in the year, according to the report.
Global Energy Price Easing Improves Fiscal Outlook
Despite the alarming surface-level reading, Equirus Securities believes that easing global energy prices following the cooling of tensions in West Asia have improved the government's fiscal outlook. The report noted, "The fiscal deficit at 9.6 per cent of FY27 BE in April-May looks alarming on the surface, but the sharp fall in global energy prices following the cooling of tensions in West Asia has meaningfully improved the outlook for the government's fiscal position through the rest of FY27."
It added that some expenditure consolidation may still be required to achieve the government's fiscal deficit target of 4.3 per cent of GDP, with capital expenditure likely to bear the brunt of any adjustment if revenue collections fail to improve.
