The Government of India's (GoI's)fiscaldeficit widened to Rs. 1.6 trillion during April-May or 2M FY2027 (9.6% of FY2027 Budget Estimate; BE) from Rs. 0.1 trillion in 2M FY2026 (0.9% of FY2026 Provisional Actuals; PA), owing to a lower surplus on the revenue account (Rs. 0.7 trillion vs. Rs. 1.8 trillion in 2M FY2026) and a moderate 13.4% expansion in capital expenditure. On the revenue front, the GoI’s gross tax revenues (GTR) grew by a tepid 1.8% in 2M FY2027, dragged down by union excise duty collections amid paring of duties on auto fuels, and outflows in Integrated-GST (IGST) head as against sizeable inflows in the year ago period. In contrast, revenue expenditure rose by 20.1% in 2M FY2027, led by a surge in food and fertiliser subsidy pay-outs, as well as interest outgo. 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. Assuming an average crude oil price of $80-85/barrel 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.

Revenue receipts eased in 2M FY2027, amid muted rise in GTR, fall in non-tax inflows: The GoI’s revenue receipts dipped by 1.2% YoY to Rs. 7.0 trillion in 2M FY2027, owing to 1-2% contraction in both net tax and non-tax revenues. GTR growth stood at a tepid 1.8% to Rs. 5.2 trillion in 2M FY2027, reflecting the steep decline in union excise duty (-19.7%, amid excise duty cuts on petrol and diesel) and outflows in the IGST head (vs. inflows in year ago period), even as corporation tax (+26.1%), CGST (+22.8%) and customs duty (+37.5%) collections posted a strong growth in the first two months of the fiscal.