CareEdge Ratings Projects FY27 Fiscal Deficit to Exceed Budget Target by ₹0.7–0.8 Trillion
Higher subsidy expenditure and an estimated ₹1 trillion shortfall in gross tax revenue could push India's fiscal deficit to 4.3–4.5% of GDP, although stronger dividends and disinvestment receipts may limit the impact.
CareEdge Ratings expects India's Centre to exceed its FY27 budgeted fiscal deficit by ₹0.7–0.8 trillion, potentially taking the fiscal deficit-to-GDP ratio to 4.3–4.5%.
The projected increase reflects pressure from higher subsidy expenditure and lower-than-budgeted gross tax revenue. However, stronger dividend transfers and disinvestment proceeds could partly offset the shortfall in government receipts. CareEdge Ratings also noted that the Centre could draw on the ₹1 trillion Economic Stabilisation Fund to meet its fiscal deficit target.
Despite the projected slippage, the agency does not anticipate additional borrowing pressure on the Centre during the current financial year.
Tax Revenue Shortfall Expected Despite GST and Customs Support
CareEdge Ratings expects customs duties and Goods and Services Tax (GST) collections to support gross tax revenue in FY27, potentially exceeding their respective budget estimates. However, lower excise duty collections are expected to weigh on overall tax receipts.
Income tax collections will also need to strengthen during the remaining months of the financial year to achieve the budgeted growth.
Taking these factors into account, CareEdge Ratings estimates that gross tax revenue could fall short of the budget estimate by approximately ₹1 trillion.
Higher dividend transfers and disinvestment receipts are expected to help contain the overall shortfall in the Centre's receipts to around ₹0.5 trillion.
Disinvestment Proceeds Exceed Previous Year's Progress
The Centre collected ₹0.56 trillion through disinvestment during the first half of FY27, equivalent to 70% of its full-year budget target of ₹0.8 trillion. This represents stronger progress compared with the corresponding period of the previous year.
The proposed sale of the government's stake in IDBI Bank could generate approximately ₹260 billion.
Overall, CareEdge Ratings expects proceeds from disinvestment and asset monetisation to reach around ₹1 trillion, exceeding the budgeted amount.
Dividend Transfers Expected to Support Government Receipts
The Centre had budgeted ₹3.2 trillion in receipts from the Reserve Bank of India (RBI), nationalised banks and financial institutions during FY27. Of this amount, the RBI's dividend surplus alone accounted for ₹2.9 trillion.
Historical trends indicate that the RBI's surplus transfers have exceeded ₹2 trillion annually since FY25, marking an increase compared with earlier years.
Higher RBI dividend payouts have provided additional fiscal support to the Centre in recent years. CareEdge Ratings expects revenue from dividends and profits to marginally exceed the budgeted estimate in FY27.
Capital Expenditure Growth Continues
The Centre's capital expenditure (capex) increased by 12.7% year-on-year during H1 FY27. The Ministry of Railways and the Ministry of Road Transport and Highways continued to account for the largest shares of capital spending.
Excluding expenditure by the Department of Food and Public Distribution (DFPD), central capex recorded stronger growth of 14% year-on-year.
The Centre also accelerated capital transfers to states, potentially reflecting higher disbursements under the Special Assistance to States for Capital Investment (SASCI) scheme.
Capital transfers to states accounted for 13.4% of total capital expenditure during H1 FY27, compared with 9.8% in the corresponding period a year earlier.
Despite the increase in first-half spending, CareEdge Ratings expects full-year capital expenditure to remain marginally below the budgeted amount.
Higher Food and Fertiliser Subsidies Put Pressure on Revenue Expenditure
Revenue expenditure is facing pressure from increased spending on major subsidies. During H1 FY27, expenditure on these subsidies grew by 10.1% year-on-year, mainly due to higher food and fertiliser subsidy outlays.
Food subsidy expenditure increased by 16% year-on-year, compared with a budgeted contraction of 0.2% for FY27.
Fertiliser subsidy spending rose by 11.2% year-on-year, despite a budgeted decline of 19.2%. This increase is likely to reflect urea procurement at elevated prices during April and May 2026, following the onset of the West Asia conflict.
However, the potential increase in fertiliser subsidy expenditure is now expected to be lower than previously anticipated, as global urea prices have fallen below their pre-conflict levels.
For the full financial year, CareEdge Ratings projects total subsidy expenditure to exceed the budgeted amount by ₹1.2 trillion. Fertiliser subsidies are expected to account for approximately ₹1 trillion of this increase, alongside a marginally higher-than-budgeted food subsidy.
CareEdge Ratings' Fiscal Outlook for FY27
According to CareEdge Ratings, the Centre's fiscal position will depend on the balance between weaker tax collections, stronger non-tax receipts and higher expenditure.
The agency's projections indicate the following:
- Gross tax revenue: Expected to fall short of the budget estimate by around ₹1 trillion.
- Overall receipts: Higher dividends and disinvestment proceeds could limit the shortfall to approximately ₹0.5 trillion.
- Subsidy expenditure: Expected to exceed the budget by ₹1.2 trillion.
- Total expenditure: Projected to exceed the budgeted target by around ₹0.3 trillion.
- Fiscal deficit: Expected to exceed the budgeted amount by ₹0.7–0.8 trillion.
- Fiscal deficit-to-GDP: Projected at 4.3–4.5%.
The Centre could use the ₹1 trillion Economic Stabilisation Fund to meet its fiscal deficit target. Consequently, CareEdge Ratings does not expect the projected fiscal slippage to create additional borrowing pressure during FY27.
The assessment highlights the competing pressures on government finances, with higher subsidy requirements and tax revenue constraints partly balanced by stronger dividend transfers and disinvestment receipts.