The report noted that the fiscal deficit undershot the revised estimate of ₹15.6 trillion as cuts in both revenue and capital expenditure offset weaker-than-expected revenue receipts. Revenue receipts missed the revised estimate by ₹0.4 trillion, while total expenditure was ₹0.6 trillion lower than budgeted.
ICRA said the government’s gross tax revenue growth slowed to 6 per cent in FY26, lower than the revised estimate of 7.4 per cent. Personal income tax collections remained flat, while corporation tax, customs duty, GST and excise duty collections recorded moderate growth.
India met its FY26 fiscal deficit target of 4.4 per cent of GDP, with the deficit contained at ₹15.2 trillion (~$159.7 billion) due to expenditure cuts and higher miscellaneous capital receipts, according to ICRA.
However, the agency warned FY27 could see a 40-basis-point fiscal slippage amid West Asia conflict risks, rising subsidies and pressure on oil-related revenues and bond yields.
The report highlighted that non-tax revenues rose sharply by 26.3 per cent year-on-year (YoY) to ₹6.8 trillion, supported by higher dividends from public sector undertakings and other non-tax income streams. Miscellaneous capital receipts also exceeded revised estimates due to monetisation-related inflows.
On the expenditure side, total spending rose 5.4 per cent YoY to ₹49.1 trillion in FY26, below the government’s revised estimate. Revenue expenditure increased amid higher subsidy payments and interest outgo, while capital expenditure rose marginally to ₹10.7 trillion but remained below target.
ICRA cautioned that FY27 has started on a weaker fiscal footing, with the fiscal deficit widening to ₹3.6 trillion in April 2026 from ₹1.9 trillion a year earlier due to lower revenues and higher expenditure.
The agency estimated a fiscal slippage of around 40 basis points over the FY27 budget target of 4.3 per cent of GDP, driven largely by risks linked to the West Asia conflict. Higher fertiliser and fuel subsidies, lower excise duty collections and weaker dividend payouts from oil marketing companies could pressure the fiscal balance.
ICRA projected India’s fiscal deficit could rise to nearly 4.7 per cent of GDP in FY27 under its baseline crude oil assumption of $95 per barrel and potentially touch 5 per cent if crude prices average $105 per barrel.
Despite these pressures, the report said higher inflows into small savings schemes and stronger cash balances could help contain additional market borrowings in FY27.
Fibre2Fashion News Desk (SG)
