State Bank of India’s (SBI) Ecowrap report has highlighted mounting challenges to the Centre’s fiscal math for the FY27, estimating the gross fiscal deficit at 4.6% of gross domestic product (GDP), higher than the budget estimate of 4.3%, due to additional spending on subsidies, excise duty cuts, and economic support measures.
Rating agency ICRA projected fiscal deficit at 4.6% for FY27 assuming an average crude oil price of $85/barrel in FY27. In case crude oil price rises to $105/barrel, ICRA projects fiscal deficit at 4.8% of GDP.
According to the SBI report, the baseline Gross Fiscal Deficit (Budget Estimate) stands at Rs 16.95 lakh crore. However, factoring in an estimated Rs 60,000 crore hike in subsidies, Rs 1.1 lakh crore loss from excise duty cuts, and a minor Rs 1000 crore under the Economic Support (RELIEF Scheme), the additional fiscal burden rises to Rs 1.7 lakh crore.
Adding a Rs 1 lakh crore provision for the Economic Stabilisation Fund pushes the estimated fiscal deficit to Rs 17.7 lakh crore, translating to 4.6% of GDP assuming 11% nominal GDP growth and the revised 2022-23 base year.
The analysis comes even as the Union Budget for FY27 had targeted a fiscal deficit of 4.3% of GDP (Rs 16.96 lakh crore approximately), continuing the path of gradual fiscal consolidation from 4.4% in FY26 (RE). SBI Research noted that the government will continue to maintain support for states’ capital expenditure, despite the headwinds.
The report also pointed out that while the Centre has successfully used instruments like scheme for Special Assistance to States for Capital expenditure to boost states’ capital spending (raising it from 2.2% to 2.7% of GDP over recent years), states themselves need to increase their own capex contributions to realize the full multiplier impact.