India adds ₹2.68 Trillion to fiscal deficit in June 2025

1 Aug 2025 , 09:47 AM

JUNE 2025 FISCAL DEFICIT – FROM UNREAL TO REAL

At the end of May 2025, fiscal deficit stood at 0.8% of full year target, and by end of June 2025, it had normalized to 17.9% of full year fiscal deficit target. In June alone, India added ₹2.68 Trillion to the fiscal deficit, neutralizing the impact of the RBI dividend of ₹2.69 Trillion in May 2025. For FY26, the government had aggressively reduced its fiscal deficit target from 4.8% of GDP to 4.4% of GDP. For FY26, STT collections, dividends from PSUs, and disinvestments proceeds are likely to flatter on the upside. However, India now has a pressing need to invest aggressively in defence and boosting capex. It also remains to be seen; how the punitive Trump tariffs will impact the fiscal deficit target for India.

FY26 FISCAL DEFICIT – ON THE HORNS OF A DILEMMA

The table is a summary of government receipts, expenditures, and fiscal deficit for FY26.

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actuals (Jun-End) (₹ in Crore) #	Actuals to Target (% achieved)
Revenue Receipts	34,20,409	9,13,377	26.7%
Tax Revenue (Net)	28,37,409	5,40,316	19.0%
Non-Tax Revenue	5,83,000	3,73,061	64.0%
Non-Debt Capital Receipts	76,000	28,018	36.9%
Total Receipts	34,96,409	9,41,395	26.9%
Revenue Expenditure	39,44,255	9,46,995	24.0%
Capital Expenditure	11,21,090	2,75,132	24.5%
Total Expenditure	50,65,345	12,22,127	24.1%
Fiscal Deficit	15,68,936	2,80,732	17.9%
Revenue Deficit	5,23,846	33,618	6.4%
Primary Deficit	2,92,598	-1,05,305	-36.0%

Data Source: Controller General of Accounts (# – 3 months data)

Fiscal deficit target for FY26 is slightly lower in absolute terms compared to FY25. As of end June 2025, the fiscal deficit stood at ₹2,80,732 crore, or 17.9% of FY26 fiscal deficit target. The RBI dividend impact has been neutralized as the fiscal deficit surged by ₹2.68 Trillion in June alone. June 2025 also saw revenue expenditure doubling over May to ₹4.22 Trillion. In the previous month, the fiscal deficit looked inordinately low at 0.8% of full year target, due to the impact of ₹2.69 Trillion RBI dividend. Going ahead, government capex and defence outlays will put pressure on fiscal deficit. Adhering to 4.4% target may be challenging.

GOVERNMENT RECEIPTS STORY IN Q1FY26

The target for total receipts for FY26 stands at ₹34.96 Trillion, sharply higher than ₹31.47 Trillion last year. Tax revenues are likely to be flat to positive, but the big boost is coming from elsewhere. RBI dividends paid out in May 2025 were at an all-time high of ₹2.69 Trillion. But, the real boost to government receipts could come from PSU dividends, disinvestment proceeds, and STT collections. Disinvestment would be aided by a 3% stake sale in LIC and strategic sale of IDBI Bank. Government may leverage high valuations of PSUs for minority stake sale. Total receipts are comfortable at 26.9% of target in Q1FY26.

GOVERNMENT SPENDING STORY IN Q1FY26

June 2025 saw a ₹4.22 Trillion surge in revenue spending, while capex growth was more modest. The government will have to balance between capex and Defence spending, the latter a bigger priority amidst geopolitical uncertainty. Reciprocal tariffs could add to the economic costs. Total expenditure in FY26 has been budgeted at ₹50.65 Trillion with 24.1% of full year target achieved in Q1FY26. Like FY25, capex promises to be higher than budget, but it has to be balanced with defence imperatives. While defence spending has been 26% of full year target of ₹6.81 Trillion, revenue spending on defence dominated defence capex.

TALE OF 2 DEFICITS: FISCAL AND REVENUE DEFICIT

Finally, how do the 2 principal deficits; fiscal deficit and revenue deficit look in Q1FY26. Fiscal deficit at ₹2.81 Trillion was 17.9% of full-year target of 15.69 Trillion. The fiscal deficit has surged after looking subdued in May due to RBI dividends. What about revenue deficit for FY26? The revenue deficit is looking sober at 6.4% of full year target, but that is more due to the lag effect of RBI dividends. Revenue deficit to fiscal deficit ratio is at 12.0% for Q1FY26, well below the FY26 ratio target of 33.4%. The next few months data will clarify if 4.4% fiscal deficit can be realistically achieved in FY26, or whether pressures from capex spending, defence, and reciprocal tariffs will add up!