FY26 fiscal deficit 0.8% of target by end-May, thanks to RBI dividend

1 Jul 2025 , 11:14 AM

FISCAL DEFICIT CLOSES MAY-25 AT 0.8% OF FY26 TARGET

It almost looked unreal with fiscal deficit at just 0.8% of FY26 budget deficit as of the end of May-25. However, one must take this data with a pinch of salt. That is because, the receipts booked till the end of May includes ₹2,69,000 Crore that RBI has paid as dividends to the government. That entire dividend has been booked under the head of non-tax receipts. It may be recollected that for FY25, the government had done tad better than its 4.8% fiscal deficit target. However, the fiscal deficit target for FY26 is more aggressive at 4.4% of GDP. The good thing is that; in FY26, the receipts from dividends and even from disinvestment of PSUs is likely to be sharply higher.

FY25 FISCAL DEFICIT – FISCAL PRUDENCE VS DEFENCE SPENDS

The table is a summary of government receipts, expenditures, and fiscal deficit for FY25.

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actuals (May-End) (₹ in Crore) #	Actuals to Target (% achieved)
Revenue Receipts	34,20,409	7,07,739	20.7%
Tax Revenue (Net)	28,37,409	3,50,862	12.4%
Non-Tax Revenue	5,83,000	3,56,877	61.2%
Non-Debt Capital Receipts	76,000	25,224	33.2%
Total Receipts	34,96,409	7,32,963	21.0%
Revenue Expenditure	39,44,255	5,24,772	13.3%
Capital Expenditure	11,21,090	2,21,354	19.7%
Total Expenditure	50,65,345	7,46,126	14.7%
Fiscal Deficit	15,68,936	13,163	0.8%
Revenue Deficit	5,23,846	-1,82,967	-34.9%
Primary Deficit	2,92,598	-1,34,625	-46.0%

Data Source: Controller General of Accounts (# – 2 months data)

Here is our fiscal deficit evaluation for FY26. Fiscal deficit target for FY26 is slightly lower in absolute terms compared to FY25. As of end May 2025, the fiscal deficit stood at ₹13,163 crore, or 0.8% of FY26 fiscal deficit. That is due to the impact of the hefty RBI dividend of ₹2.69 Trillion paid out as government share of capital in early May 2025. The entire amount has been booked in May. That is why the fiscal deficit is so low and the revenue and primary account are showing a surplus instead of a deficit. These data points should normalize over the next few months; and remember defence outlays will be a big priority in FY26.

GOVERNMENT RECEIPTS STORY IN FY26

The target for total receipts for FY26 stands at ₹34.96 Trillion, sharply higher than ₹31.47 Trillion last year. Like the previous year, even this year, the bumper RBI dividend of ₹2.69 Trillion has given a big boost to non-tax revenues. This year, buoyancy is expected in tax and non-tax revenues. Disinvestment revenues are also expected to be higher than target due to the 3% stake sale in LIC and the strategic sale of IDBI Bank. In addition, government is also planning to sell minority stakes in several PSU defence stocks, with robust valuations. Total receipts stand at 21% of target.

GOVERNMENT SPENDING STORY IN FY26

Like last year, the government spending has shown a strong penchant for capex spending, which is the right way to go. Total expenditure in FY26 has been budgeted at ₹50.65 Trillion with 14.7% of the full year target achieved in the first two months. However, there is a dichotomy similar to last year. While revenue spending was 13.3% of full year target, the capex spending was 19.7% of full year target. Like last year, the capex promises to be higher than the budget. However, one point to be noted is that, in FY26, the defence spending has been higher in the first two months and is likely to stay elevated through the year.

TALE OF 2 DEFICITS: FISCAL AND REVENUE DEFICIT

Let us finally look at how the 2 principal deficits; fiscal deficit and revenue deficit panned out in first two months of FY26. Fiscal deficit at ₹0.13 Trillion was just 0.8% of the full-year target of 15.69 Trillion. However, this may be distorted due to the front-loading of the RBI dividend paid to the government. What about revenue deficit for FY26? Once again, the revenue deficit is showing a surplus at the end of two months, but that is again distorted by the RBI dividend. The next few months data will clarify if the 4.4% fiscal deficit can be realistically achieved in FY26.