FISCAL DEFICIT: CHALLENGES TO INDIA'S FISCAL MANAGEMENT

10 Nov 2026

Tags: Economy   Budgeting   Fiscal policy

Source: The Indian Express

Context: Midway through FY2026–27, the Union Government faces the possibility of fiscal slippage due to subdued tax revenue growth, slowing capital expenditure and rising subsidy requirements.

• The Union Budget had targeted a fiscal deficit of 4.3% of GDP, but estimates by rating agencies and economists suggest it could rise to 4.3–4.5%.

Revenue-Side Developments

• Gross tax revenue: Grew by only 6.1% during April–September 2026, slightly below the growth assumed in Budget Estimates.
• Direct taxes: Recorded relatively healthy growth, with corporate tax collections performing better than personal income tax collections.
• Excise duty: Collections declined sharply following excise duty cuts on petrol and diesel, falling to ₹1.07 lakh crore against ₹1.38 lakh crore during the corresponding period last year.
• Customs duty: Grew by 16.5% in H1 FY2026–27, potentially offsetting part of the shortfall in excise revenue.
• Disinvestment and asset monetisation:
  • Disinvestment receipts: ₹55,757 crore.
  • Asset monetisation receipts: ₹6,366 crore.
  • The government is likely to exceed its annual target of ₹80,000 crore.

IDBI Bank Stake Sale

• Buyer: Fairfax Financial Holdings has been selected as the buyer for a 60.72% stake in IDBI Bank.
• Deal value: ₹52,878 crore.
• The government's share in the proceeds is expected to significantly boost disinvestment receipts.

Expenditure-Side Developments

• Capital expenditure (CapEx): Growth slowed significantly from 23.7% in Q1 to 2.8% in Q2, indicating moderation in government capital spending.
• Fertiliser subsidy: According to CareEdge Ratings, expenditure may increase to ₹2.5–2.7 lakh crore, against the budgeted ₹1.7 lakh crore.
• Other subsidies: Higher petroleum and LPG subsidy requirements may further increase expenditure.
• Overall impact: Rising subsidies and revenue shortfalls could put pressure on the fiscal deficit.

Fiscal Deficit Estimates

• Budget Estimate (FY2026–27): 4.3% of GDP.
• CareEdge Ratings: Expects the deficit to rise to 4.3–4.5% of GDP.
• SBI economists: Estimate that the deficit could increase by approximately ₹1.2 lakh crore due to excise revenue losses and higher fertiliser and petroleum/LPG subsidies.

Implications for Fiscal Management

• Fiscal slippage: The government may find it difficult to adhere to its budgeted fiscal deficit target.
• Expenditure rationalisation: The government may need to moderate or reprioritise expenditure in the remaining months of the financial year.
• Capital expenditure concerns: Slower public investment could affect infrastructure development and crowding-in of private investment.
• Developmental trade-off: Cutting expenditure may help control the deficit but could affect welfare spending and economic growth.

Additional UPSC-Relevant Concepts

• Fiscal Deficit: The excess of total government expenditure over its total receipts, excluding borrowings.

• 

  - Indicates the government's borrowing requirement.

• Fiscal Slippage: A situation in which the actual fiscal deficit exceeds the budgeted target due to revenue shortfalls or higher-than-anticipated expenditure.

 

Disinvestment vs Asset Monetisation

Disinvestment	Asset Monetisation
Sale of government equity in public sector enterprises.	Unlocking the economic value of existing public assets.
May involve transfer of ownership or management control.	Generally involves leasing or transferring operational rights while retaining ownership.
Example: IDBI Bank stake sale.	Example: Monetisation of roads and transmission assets.

Capital Expenditure vs Revenue Expenditure

• Capital expenditure: Creates assets or reduces liabilities, e.g., roads, railways and infrastructure.
• Revenue expenditure: Covers recurring expenses, e.g., salaries, pensions, subsidies and interest payments.

Way Forward

• Improve tax compliance and broaden the tax base to strengthen revenue mobilisation.
• Rationalise subsidies through better targeting and reduced leakages without compromising vulnerable sections.
• Protect productive capital expenditure to sustain long-term growth.
• Adopt prudent fiscal management to balance fiscal consolidation with developmental priorities.