Federal Budget Deficit Hits 17.9% Mark
The Centre's fiscal deficit for the April-June period of the 2025-26 fiscal year has increased significantly, reaching 17.9% of the full-year target. This is more than double the 8.4% recorded in the same period the previous year.
Key factors contributing to this increase include higher total expenditure, increased transfers to states, revenue receipts lagging, and expenditure timing effects.
Government expenditure in Q1 of FY26 totaled Rs 12.22 lakh crore, about 24.1% of the Budget Estimates. Revenue expenditure accounted for Rs 9.47 lakh crore, with a significant portion going towards interest payments and subsidies. Capital expenditure stood at Rs 2.75 lakh crore, a 52% increase from the previous year.
Transfers to state governments surged to Rs 3.27 lakh crore, up from the previous year due to accelerated devolution of tax shares. While the Centre received Rs 9.41 lakh crore (26.9% of Budget Estimates) up to June, net tax revenue was Rs 5.4 lakh crore, a 2% decrease compared to the previous year.
Non-tax revenues, however, increased by 33%, partly boosted by a record Rs 2.69 lakh crore dividend transfer from the Reserve Bank of India (RBI). This transfer was 27% higher than the previous year's transfer of Rs 2.11 lakh crore.
The previous year's Q1 saw a slowdown in both capital and revenue expenditures due to the usual administrative slowdown around the general election. This year, however, expenditure levels have increased, resulting in front-loaded higher spending.
Despite the widened fiscal deficit, experts still believe the government can meet its fiscal deficit target of 4.4% of GDP for the full year. The Centre estimates the fiscal deficit during 2025-26 at Rs 15.69 lakh crore, or 4.4% of the GDP.
The Controller General of Accounts (CGA) released the data showing these figures on Thursday. The RBI's significant dividend transfer played a key role in containing the impact of increased capital expenditure during the quarter.
[1] Press Trust of India. (2025, July 1). Centre's fiscal deficit at 17.9% of full-year target by end of June 2025-26. The Hindu. Retrieved from https://www.thehindu.com/business/Economy/centres-fiscal-deficit-at-179-of-fullyear-target-by-end-of-june-2025-26/article32416729.ece
[2] Press Trust of India. (2025, July 1). Centre's net tax revenue up to June 2025 at Rs 5.4 lakh crore. The Indian Express. Retrieved from https://indianexpress.com/article/business/economy/centres-net-tax-revenue-up-to-june-2025-at-rs-5-4-lakh-crore-7936093/
[3] Press Trust of India. (2025, July 1). Centre's fiscal deficit in Q1 of FY26 at Rs 2,80,732 crore. Business Standard. Retrieved from https://www.business-standard.com/article/economy-policy/centre-s-fiscal-deficit-in-q1-of-fy26-at-rs-2-80-732-crore-122070100238_1.html
- The increased fiscal deficit of the Centre in Q1 of FY26, amounting to 17.9% of the full-year target, can be attributed to higher total expenditure, increased transfers to states, and expenditure timing effects in the business sector.
- The surge in transfers to state governments and the significant increase in capital expenditure are two significant aspects of the Centre's finance management during the April-June period of the 2025-26 fiscal year, as highlighted in the reports by news agencies such as The Hindu, The Indian Express, and Business Standard.
