As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2026-27, one key number that will be on everyone’s radar is the fiscal deficit. ICRA recently flagged that the fiscal deficit has widened to around 62% of the FY26 budget estimate during April–November, compared with about 53% in the year-ago period, reflecting front-loaded spending.
From FY25 to FY26: A narrowing fiscal deficit target
In the July 2024 Budget, the Centre had pegged the fiscal deficit for FY25 at 4.9% of gross domestic product (GDP), later revising it down to 4.8% in the February 2025 revised estimates, according to Budget documents.
For FY26, Sitharaman sharpened the consolidation path further. Presenting the Union Budget on 1 February 2025, she set the fiscal deficit target at 4.4% of GDP, translating to an absolute borrowing gap of Rs 15.7 lakh crore(Reuters estimates the 4.4% GDP as Rs 15.7 lakh crore). The estimate was based on total expenditure of Rs 50.65 lakh crore and receipts (excluding borrowings) of Rs 34.96 lakh crore, as per Budget 2025-26.
Faster drawdown in FY26
While the headline target remains intact, execution has been front-loaded. Data up to November 2025 show that the Centre had already utilised Rs 9.76 lakh crore, or 62.3% of the full-year fiscal deficit target, during the April–November period, as per data from the Controller General of Accounts. This compares with 52.5% utilisation during the same period last year, pointing to a materially faster pace of deficit consumption. “The Government of India‘s (GoI’s) fiscal deficit widened to Rs 9.8 trillion or about 62% of the FY2026 budget estimate during April–November FY2026,” Aditi Nayar, chief economist at ICRA, said.
The acceleration has been driven largely by expenditure. Capital expenditure stood at Rs 6.58 lakh crore by November, accounting for nearly 59% of the annual target. ICRA noted that capex rose 28% year-on-year during the April–November period, even though it contracted for the second consecutive month in November. Interest payments also crossed 58% of their full-year estimate during the same period, data from Controller General of Accounts said.
Revenue strain beneath the surface
On the revenue side, revenue receipts have lagged budget assumptions. By November, collections stood at Rs 19.49 lakh crore, or 55.7% of the annual target, marginally lower than the comparable period last year.
“The Government of India’s (GoI’s) fiscal deficit widened amid a 28% YoY surge in capex, even as the revenue deficit printed in line with the year-ago levels. Notably, while net tax revenues contracted by 3.4% during this period, non-tax revenues expanded by 20.8% and revenue expenditure rose by a muted 1.8%, keeping the revenue deficit in check,” Nayar said.
ICRA also pointed to weakness in tax collections, noting that gross tax revenues rose by just 3.3% year-on-year during April–November FY2026, with indirect taxes remaining subdued after GST rationalisation and customs duties contracting.
The report released by Controller General of Accounts said that the Government of India has received Rs 19,49,239 crore (55.7% of corresponding BE 2025-26 of total Receipts) up to November 2025, comprising Rs 13,93,946 crore of tax revenue (net to centre), Rs 5,16,366 crore of non-tax revenue and Rs 38,927 crore of non-debt capital receipts
Government and RBI signal comfort
Despite the tighter arithmetic, Sitharaman has reiterated confidence in the fiscal deficit meeting the 4.4% of GDP target by March 2026, citing expected improvement in revenue collections and expenditure management in the final quarter of the fiscal year. ICRA, however, noted that potential slippage on the tax side could be offset by higher-than-budgeted non-tax revenues and expenditure savings, and does not currently expect a fiscal slippage.
The Reserve Bank of India, while not setting fiscal targets itself, has publicly endorsed the consolidation trajectory. RBI governor Sanjay Malhotra said the government had “curtailed the fiscal deficit at 4.4%”, better than the earlier indicated 4.5%.
Looking beyond annual targets
With over three-fifths of the FY26 deficit already spent by November, the final months of the year will determine how much room the finance minister has to manoeuvre while staying within the consolidation promise she has repeatedly defended. ICRA said savings in non-interest, non-subsidy revenue expenditure could help offset pressures from slower tax collections in the final months of the fiscal.