India likely to miss FY27 fiscal deficit target: BMI

According to BMI, a Fitch Group company, India’s fiscal deficit is likely to widen to 4.5% of the country’s GDP.

New Delhi: India is likely to breach the budgeted 4.3 per cent fiscal deficit target in the current financial year as a surge in fertiliser and energy prices due to the ongoing West Asia conflict would push subsidy spending, research firm BMI said on Wednesday.

According to BMI, a Fitch Group company, India’s fiscal deficit is likely to widen to 4.5per cent of the country’s GDP.

“We maintain our forecast that the Centre will register a fiscal deficit worth 4.5 per cent of GDP in 2026-27. However, upside risks to our fiscal deficit outlook have increased,” it said.

In the Union Budget, the Prime Minister Narendra Modi government has pegged the fiscal deficit for the current financial year at 4.3 per cent of GDP, marginally lower than the revised estimate of 4.4 per cent in 2025-26.

Fiscal deficit is the gap between the government’s revenue and expenditure.

The Centre's total expenditure for FY2026-27 has been pegged at Rs 53.5 lakh crore, while non-debt receipts are estimated at Rs 36.5 lakh crore. The Centre’s net tax receipts for the current fiscal are estimated at Rs 28.7 lakh crore.

Fiscal deficit is the main operational instrument for debt targeting. If the fiscal deficit widens, the government will have to borrow more.  

The West Asia conflict, which started nearly a month after the presentation of the Budget, has led to a surge in prices of oil, gas, fertiliser and other commodities. Fertiliser and fuel prices have a significant bearing on the government’s subsidy.  

The government may also be required to boost spending on supporting industries impacted due to the Gulf conflict.

Finance Minister Nirmala Sitharaman has described the West Asia conflict as a “systemic tremor”. At the same time, she has assured that the government will stick to its fiscal deficit target.

As a measure to deal with the conflict, the Centre has established a Rs 1 lakh crore Economic Stabilisation Fund.

“We estimate this will contribute 0.1% of GDP to fiscal expenditure in FY2026-27. New Delhi will likely spend the proceeds on additional subsidies for energy and fertiliser products,” BMI said.

"The government’s past fiscal consolidation efforts reduced expenditure on energy and fertiliser subsidies to around 1.5% of India’s GDP in recent years. Given the importance of energy and fertilisers to India’s economy, we expect this subsidy amount to rise in FY27," it added.

According to BMI, the stabilisation fund may also be used to finance temporary tax deductions. The Centre has cut customs duties on petrol and diesel to keep the retail prices unchanged. The government has also introduced temporary tax concessions on sales by firms operating in SEZs.

To cut spending, according to BMI, the Indian government might defer several energy-intensive public infrastructure projects to the next fiscal.