April-May Fiscal Deficit Reaches ₹1.6 Lakh Cr, Touches 9.6% of FY27 Budget Estimate

The Centre’s fiscal deficit widened in the first two months of FY2026-27 as government spending rose and tax receipts weakened. According to Controller General of Accounts (CGA) data, April-May showed a deficit of ₹1.6 lakh crore, sharply higher as a share of the annual target than in the same period last year.

Why Did the Fiscal Deficit Widen in April-May?

ICRA Chief Economist Aditi Nayar attributed the fiscal expansion to two factors: an 18% rise in total expenditure and a 1-2% contraction in both net tax receipts and non-tax revenues.

How Tax Receipts Were Affected?

Gross tax revenues grew just 1.8% year-on-year, a modest pace for the start of the fiscal year. The key drag came from excise duty collections, which fell 20% following the Centre’s reduction in duties on petrol and diesel.

GST collections contracted marginally due to higher IGST outflows, though central GST collections expanded 22.8%. Income tax collections rose 6.8%, well below the pace needed to meet the full-year Budget target.

How Spending Rose Across Both Revenue and Capital Heads?

Revenue expenditure rose 20.1%, driven by higher subsidies and interest payments. Excluding these two items, revenue expenditure still grew 14.5%. Capital expenditure, like spending on roads, railways, and infrastructure, rose 13.4%, supporting economic growth even as it added to the near-term fiscal gap.

How did RBI’s Dividend Cushion the Revenue Account?

DK Srivastava, Chief Policy Advisor at EY India, said the fiscal numbers reflected the combined impact of the West Asian crisis, GST reforms introduced in September 2025, and the large dividend transfer from the Reserve Bank of India.

Nearly 74% of the year’s budgeted dividend receipts had already been realised in the first two months, leaving the revenue account in surplus despite the rise in expenditure.

Final Outlook

The April-May numbers reflect the front-loaded impact of higher spending and the revenue loss from excise duty cuts. The RBI’s dividend and easing energy prices have softened near-term concerns. Next, how closely the Centre tracks its 4.3% of GDP target through the rest of FY27 will depend on whether tax collections, particularly income tax, can accelerate from the subdued pace seen in the first two months.