India adds ₹4.55 Trillion to fiscal deficit in June and July 2025

1 Sep 2025 , 02:52 PM

JULY 2025 FISCAL DEFICIT – SPENDING PRESSURE SHOWS UP

At the close of May 2025, fiscal deficit stood at 0.8% of full year target, but had increased to 17.9% by end of June 2025. By end of July 2025, fiscal deficit had scaled 29.9% of full year target. Two things changed in recent months. Firstly, the geopolitical situation called for higher revenue and capital spending on defence. Secondly, the global reciprocal tariff crisis has called for higher spending support from the government and tax cuts. This does raise questions over whether the fiscal deficit target for FY26 can be contained at 4.4% as enshrined in the latest Union Budget, or whether it will spill over on the upside.

FY26 FISCAL DEFICIT – SHARP PICK-UP IN LAST TWO MONTHS

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

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actual (Jul-End) (₹ in Crore) #	Actual to Target (% achieved)
Revenue Receipts	34,20,409	10,65,420	31.1%
Tax Revenue (Net)	28,37,409	6,61,812	23.3%
Non-Tax Revenue	5,83,000	4,03,608	69.2%
Non-Debt Capital Receipts	76,000	29,789	39.2%
Total Receipts	34,96,409	10,95,209	31.3%
Revenue Expenditure	39,44,255	12,16,699	30.8%
Capital Expenditure	11,21,090	3,46,926	30.9%
Total Expenditure	50,65,345	15,63,625	30.9%
Fiscal Deficit	15,68,936	4,68,416	29.9%
Revenue Deficit	5,23,846	1,51,279	28.9%
Primary Deficit	2,92,598	21,726	7.4%

Data Source: Controller General of Accounts (# – 4 months data)

Fiscal deficit target for FY26 is sharply higher in absolute terms compared to FY25. As of end July 2025, the fiscal deficit stood at ₹4,68,416 crore, or 29.9% of FY26 fiscal deficit target. The RBI dividend impact has been neutralized as the fiscal deficit surged by ₹4.55 Trillion in June and July 2025. That is more than twice the fiscal deficit accretion in June and July of last fiscal. July 2025 again saw revenue expenditure surge sharply. In end of May 2025, the fiscal deficit looked inordinately low at 0.8% of full year target, due to the impact of ₹2.69 Trillion RBI dividend. With the surge in last 2 months, the 4.4% target may be challenging.

TALE OF 2 DEFICITS: FISCAL AND REVENUE DEFICIT

Finally, how do the 2 principal deficits; fiscal deficit and revenue deficit look like in FY26. Fiscal deficit at ₹4.68 Trillion was 29.9% 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 has also surged sharply to 28.9% of full year target, but that is more due to the lag effect of RBI dividends. However revenue spending has risen sharply in last 2 months, and that is having an impact.

Revenue deficit to fiscal deficit ratio is at 32.3%  as of end July 2025, just 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 capital spending, defence, and reciprocal tariffs will add up? For now it looks like the government may focus more on tax cuts and spending to pump prime growth! That could be at the cost of the fiscal deficit target of 4.4% for FY26.