FY27 Fiscal Deficit May Breach Target by Rs 1.2 Lakh Crore: SBI Research
SBI Research warns that India's FY27 fiscal deficit could exceed budget targets by Rs 1.2 lakh crore due to subsidies and lower tax receipts.
India's financial roadmap for the 2026-27 fiscal year could face significant headwinds. According to a recent report by SBI Research, the Centre's FY27 fiscal deficit may exceed the Budget Estimate by approximately Rs 1.2 lakh crore, potentially climbing to 4.7 per cent of the GDP, surpassing the original target of 4.3 per cent.
The Drivers Behind the Deficit Surge
The report highlights a combination of structural factors and shifting calculation bases that are putting pressure on the government's coffers. A primary reason for the discrepancy is the use of the 2022-23 GDP base for the revised estimate, whereas the Budget Estimate relied on the 2011-12 base.
Beyond the technicalities of GDP calculation, several tangible financial leaks are contributing to the gap:
- Excise Duty Cuts: A substantial revenue loss estimated at Rs 1.1 lakh crore.
- Fertiliser Subsidies: An additional burden of approximately Rs 90,000 crore.
- Fuel Subsidies: Around Rs 48,000 crore earmarked for petroleum and LPG subsidies.
Early Warning Signs in FY27
The pressure is not just a future projection; it is already evident in the first half of the fiscal year. Data shows that the fiscal deficit has surged by 24.7 per cent year-on-year, reaching Rs 7.14 lakh crore. During this same period, total government expenditure grew by 10.7 per cent, while revenue receipts saw a modest increase of only 3.6 per cent.
How the Government Can Manage the Gap
Despite the looming deficit, SBI Research suggests that the government might not need to ramp up its borrowing programme. Instead, the report points toward a few strategic levers the Centre can pull to keep finances stable:
1. Expenditure Rationalisation
The report explicitly states that cutting expenditure is the most viable option to bring the deficit back within budget estimates. Historically, the government has managed this, with an average expenditure reduction of about Rs 45,000 crore over the last three years.
2. Leveraging Cash Balances
The government's cash balance, adjusted for core liquidity, is expected to be around Rs 8.5 lakh crore by the end of October 2026—a massive jump from the Rs 2.2 lakh crore seen a year prior. While this balance is expected to moderate to Rs 2.5 lakh crore by March 2027, it provides a critical cushion.
3. Borrowing Adjustments
Interestingly, government borrowings have already decreased by Rs 1.23 lakh crore through switches and buybacks. This has brought the current borrowing estimate down to Rs 15.97 lakh crore, compared to the budgeted Rs 17.2 lakh crore.
The Path Forward
To offset the additional fiscal burden, SBI Research anticipates a few positive catalysts, including stronger growth in GST collections and higher receipts from disinvestment. Additionally, a marginal reduction in capital expenditure may be employed to balance the books. However, the report maintains that the rationalisation of spending will remain the most critical tool for maintaining fiscal discipline.