Research Report

The Government of India's (GoI's)fiscaldeficit widened to Rs. 7.1 trillion in H1 FY2027 (42.1% of FY2027 Budget Estimate; BE) from Rs. 5.7 trillion in H1 FY2026 (37.7% of FY2026 Provisional Actuals; PA), led by a higher revenue deficit, as well as a healthy 12.7% capex expansion. The modest 6.1% growth in gross tax revenues (GTR) in H1 FY2027 was attributed to the contraction in excise duty collections given the duty cuts on petrol and diesel, and the sluggish growth in personal income tax (PIT) collections. Given the steep asking rates of ~28-38% for H2 FY2027, a miss on both these accounts seems likely, although this would be partly offset by excess collections on the customs duty front, which has expanded by a strong 16.5% in H1 FY2027 aided by a healthy growth in imports, and disinvestment proceeds.

• With global energy prices remaining at elevated levels, ICRA expects an overshooting on the fertiliser and fuel subsidy front, as well as a shortfall on the revenue receipts side, which could result in a modest fiscal slippage of ~Rs. 1.3-1.4 trillion (0.3% of GDP) relative to the FY2027 target, amid some buffers including the Rs. 1.0 trillion Economic Stabilisation Fund (ESF). owever, this could be partly absorbed by expenditure savings, which had amounted to Rs. 1.6-1.7 trillion during FY2025-2026.
• Additionally, a fiscal slippage may not necessarily manifest into higher borrowings, as small savings inflows have surged by 54% in H1 FY2027 and are expected to overshoot the FY2027 target.