New Delhi: India’s fiscal deficit reached 9.6% of the full-year (2026-27) target at the end of May.
The fiscal deficit, reflecting the gap between expenditure and revenue financed by borrowing, had touched 21.4% of the ₹16.96 trillion budget estimate (BE) for FY27 in April.
The Centre’s fiscal deficit narrowed to 9.6% of the budget estimate or ₹1.62 trillion, mainly due to a record ₹2.87 trillion dividend received from the Reserve Bank of India, according to the latest accounts released by the Controller General of Accounts (CGA) on Tuesday.
The government has budgeted a fiscal deficit of 4.3% of gross domestic product, or about ₹16.96 trillion, for FY27 and is expected to rely on stronger tax collections and non-tax receipts in the coming months to keep the deficit within the target.
May’s fiscal position also reflects a combination of weaker receipts and front-loaded expenditure at the start of the financial year. Experts caution against reading too much into the first couple of months’ data as direct tax collections,and public sector enterprises, and settlements are unevenly distributed through the year.
According to the CGA, the amount the government received under the head ‘dividends and profits’ was ₹2.89 trillion or 74% of the BE.
The data on monthly accounts showed that the government received ₹7.19 trillion, 19.7% of corresponding BE 2026-27 of total receipts, up to May 2026.
This comprised ₹3.48 trillion tax revenue (net to centre), ₹3.51 trillion of non-tax revenue and ₹19,664 crore of non-debt capital receipts.
The decline in receipts follows the Centre’s March decision to cut on petrol and diesel by ₹10 per litre each to shield consumers from elevated global crude prices due to the war in West Asia, resulting in a revenue loss of nearly ₹14,000 crore per month. Also, global uncertainty due to war in West Asia impacted trade and resulted in slowing IGST collections.
“CGA data for April and May 2026 reflect three basic developments: first, the effect of the ongoing West Asian crisis, second, the sustained impact of the major GST reforms undertaken in September 2025 and third, substantive transfer of dividends from the RBI to the GoI,” said D.K. Srivastava, chief policy advisor, EY India.
He added that, on the non-tax revenue side, major fiscal support was provided through the RBI’s dividend declaration, which was transferred to the government in May. “As a result, 74% of the budgeted dividends and profits for the full year has already been covered in the first two months. This facilitated financing of increases in expenditures with total expenditure showing a growth of 18.1%,” Srivastava said.
The government’s spending rose significantly. Total expenditure stood at 16% of BE upto May at ₹8.81 trillion up from 15% of BE upto May in the year-ago period.
Of the total expenditure, revenue expenditure rose to ₹6.30 trillion up to May in FY27 from ₹ 5.25 trillion up to May in FY26, while capital expenditure increased to ₹ 2.5 trillion from ₹ 2.21 trillion up to May in previous year.
The food subsidy expenditure reached 18% of budgeted amount to ₹ 40,800 crore upto May up from ₹27,990 crore upto May in the previous fiscal FY26. The outgo upto May is in respect of FY27 budget allocation of ₹2.28 trillion towards food subsidy, underscoring the government’s continued focus on food security programmes. Urea subsidy spending also rose 50% to ₹ 28,454 crore from ₹19,951 crore a year ago, with 24% of the annual allocation already utilised in the first two months of the fiscal year. Urea prices have shot up globally due to West Asia war.
The increase in capital expenditure is significant as the government continues to rely on public investment to support economic growth. Front-loading of capital spending in the initial months of the fiscal year is generally viewed positively because it creates demand, crowds in private investment and supports infrastructure creation.
“The Government of India’s (GoI’s) fiscal deficit amounted to Rs. 1.6 trillion or 9.6% of the FY2027 BE during April-May FY2027, as against just Rs. 0.1 trillion (0.8% of PE) in the year ago period. The fiscal expansion was driven by a 18% surge in total expenditure and the 1-2% contraction in net tax receipts and non-tax revenues,” said Aditi Nayar, chief economist, Icra Ltd.
“Looking ahead, the sharp dip in global energy prices following the cooling of tensions in West Asia has improved the outlook for the GoI’s fiscal position in FY2027. ICRA now expects only a marginal overshooting in the GoI’s fiscal deficit vis-à-vis the target of 4.3% of GDP for FY2027, as against the previous estimate of a 40 bps slippage, which assumed an average crude oil price of $95/barrel for the fiscal,” she added.
A notable feature of the May accounts was the sharp rise in interest payments. The Centre spent ₹ 1.81 trillion on servicing debt upto May this year, compared with ₹1.48 trillion upto May a year ago, reflecting the growing burden of public debt.
The revenue deficit moved into the surplus zone in May recording negative ₹68,985 crore upto May in FY27 from negative’s ₹1.83 trillion upto amay in FY26. Similarly, the primary deficit, which excludes interest payments, also went into surplus to negative ₹19,107 crore from negative ₹1.35 trillion upto May in FY26. .