April-August fiscal gap widens to ₹7.1 lakh crore on higher capex, subsidy outgo

New Delhi: The central government's fiscal deficit stood at ₹7.1 lakh crore, or 41.9% of the target for the entire financial year, at the end of August due to higher capital expenditure and increased spending on subsidies, showed official data released on Wednesday.

The fiscal gap in the year-ago period was ₹6 lakh crore. The higher deficit came as the government's expenditure on major subsidies increased 24.6% year-on-year to ₹1.87 lakh crore from ₹1.5 lakh crore.

As per data released by the Controller General of Accounts, the Centre's net tax revenue in first five months of the fiscal was about ₹8.38 lakh crore, or 29.2% of the corresponding budget estimate (BE) of 2026-27 of the total receipts, as against 28.6% in the year-ago period.

The Centre has set a fiscal deficit target of 4.3% of gross domestic product, or ₹16.96 lakh crore, for this fiscal.

In August, the fiscal deficit was ₹2.5 lakh crore compared with ₹1.29 lakh crore a year ago. "The sharp rise in the fiscal deficit in August 2026 was led by the release of an extra tranche of devolution to the states in August 2026," said Aditi Nayar, chief economist, ICRA.

The data on monthly accounts showed that the total expenditure during the first five months was at about ₹20.78 lakh crore, or 38.9% of BE compared with 37.1% in the year-ago period.

The revenue expenditure was higher at 38%, against 36.7% last year, due to higher allocations for fertilisers, petroleum and food distribution, which is the subsidy component. In the case of fertilisers, it was at 60% of the total budget relative to 50% last year.

Food subsidy expenditure rose nearly 30% to ₹83,510 crore during April-August from ₹64,408 crore a year earlier.

Gross tax revenue increased 6.5% year on-year in first five months of the fiscal, amid a sharp 23% contraction in excise duty collection due to excise duty cuts on petrol and diesel earlier in the financial year, even as most other taxes posted a double-digit growth in this period.

Slippage seen

Given the revenue shortfall anticipated in taxes as well as additional subsidy requirements for fuel and fertiliser, ICRA said fiscal deficit is estimated to overshoot the BE by ₹1.3-1.4 lakh crore.

"However, this could be absorbed by expenditure savings, which amounted to ₹1.6-1.7 lakh crore in FY26," Nayar said, adding that small savings inflows have remained strong and are likely to overshoot budgeted levels for 2026-27 providing some cushion to the Centre for additional borrowings in the second half of the fiscal beyond what is indicated, even if there is a fiscal slippage.