The Government of India's (GoI's) fiscal deficit narrowed to Rs. 12.5 trillion or ~80.4% of the FY2026 RE during April-February FY2026 from13.5 trillion (~86% of Actuals) in the year ago period, led by a lower revenue deficit, even as capex was 15% YoY higher during this period. ICRA expects the fiscal deficit to print at 4.5% of GDP in FY2026, higher than the RE of 4.4%, on the back of a downward revision in the nominal GDP numbers in the 2022-23 series vis-à-vis the 2011- 12 series. The GoI has recently cut the excise duty on fuels, which is expected to result in a net revenue loss of ~Rs. 1.0-1.2 trillion in FY2027 (~0.3% of GDP), although this will be partly offset by the amount allocated towards the Economic Stabilisation Fund (ESF). Nevertheless, the West Asia crisis has complicated the GoI’s budget math for FY2027, raising material risks on the expenditure and revenue side, especially if the conflict persists for a prolonged period keeping crude oil and natural gas prices elevated, beyond our current baseline forecasts. The 10Y G-sec yield is expected to remain elevated, owing to worsening fiscal risks from excise duty cut, potential rise in subsidies amid high energy prices, despite lower front-loading of gross market borrowings (GMBs) announced for H1 FY2027, vis-à-vis recent years.