Unfazed by West Asia crisis, fiscal deficit within range at 18.2% in Q1

New Delhi: The Centre's fiscal deficit in the first quarter of FY27 stood at 18.2% of the full-year target, marginally higher than 17.9% a year earlier, as higher capital and revenue spending was partly offset by stronger net tax collections.

The numbers suggest the impact of the ongoing West Asia conflict on global energy and other commodity prices has not materially strained the government's finances, analysts said.


In absolute terms, the fiscal deficit for April-June stood at ₹3.07 lakh crore, compared with ₹2.8 lakh crore a year earlier, according to official data released on Friday. The government has budgeted a fiscal deficit of ₹16.96 lakh crore for FY27.

In June alone, the fiscal deficit fell 46% year-on-year to ₹1.45 lakh crore, helped by lower revenue expenditure and higher tax collections. The first-quarter numbers strengthen the likelihood of the government meeting its FY27 fiscal deficit target of 4.5% of GDP (4.3% as per the earlier GDP estimate), analysts said.

Revenue expenditure rose more than 7% year-on-year to ₹10.17 lakh crore in the June quarter, driven largely by higher spending in April. This accounted for 24.6% of the full-year target, compared with 24% a year earlier.

The Centre's subsidy bill jumped more than 37% to ₹1.14 lakh crore in the first quarter, led by fertiliser subsidies, which rose to ₹64,667 crore from ₹41,022 crore following the West Asia conflict.

The Q1 fiscal deficit data was important because this was the time when there was extra pressure on the fertiliser subsidy bill (as global prices jumped) and on tax revenue (as the government had to lower the excise duty on fuel products to protect consumers), according to Madan Sabnavis, chief economist at Bank of Baroda.

Capital expenditure remained strong, rising 24% year-on-year to ₹3.40 lakh crore in the first quarter. This represented 27.8% of the full-year capex target, compared with 24.5% a year earlier.

Impact of indirect tax changes

ICRA chief economist Aditi Nayar said gross tax revenue rose 4% year-on-year in the first quarter, mainly because of a 22% decline in excise duty collections following duty cuts on petrol and diesel, as well as weaker growth in goods and services tax collections. Customs duty collections, however, surged 36%, aided by higher duties on gold and silver, elevated global commodity prices and a low base, she said.

Nayar said she did not expect the government to increase market borrowing in the second half of the fiscal year, as the impact of the West Asia conflict on government finances could be offset by expenditure savings.