Thursday, 12 Mar, 2026
Photo Courtesy: PIB
The fiscal deficit hit the targeted 4.8% of GDP in FY25, totalling Rs15.77 lakh crore, supported by higher nominal GDP and controlled revenue spending.
The Centre managed to contain its fiscal deficit—the shortfall between its income and spending—at 4.8 per cent of GDP for the financial year 2024–25. That’s exactly in line with its revised target, which sends a positive signal about fiscal discipline at a time when global investors are watching government budgets closely.
The total fiscal deficit came in at Rs 15.77 lakh crore. While this was slightly higher than the Rs 15.43 lakh crore estimate, it still stayed within a manageable range, helped by a surprising tailwind: a higher-than-expected dividend from the Reserve Bank of India (RBI).
Notably, the nominal GDP—the total size of the economy without adjusting for inflation—grew to Rs 330.68 lakh crore, which was stronger than the earlier estimate of Rs 324.11 lakh crore. This helped bring down the deficit as a share of GDP.
Surprise Boost from RBI
The RBI transferred Rs 2.11 lakh crore to the government for FY24 and has already approved a record Rs 2.69 lakh crore payout for FY25. This is more than double the Rs 1.02 lakh crore it had transferred the previous year and gave the Centre critical breathing room. These large dividend windfalls acted like a fiscal cushion—filling revenue gaps and giving the government extra space to spend without borrowing more heavily or making politically difficult cuts.
Revenue and Spending Performance
The government’s total income from taxes reached Rs 24.99 lakh crore, about 98 per cent of its revised target. Non-tax revenue—largely from dividends, interest, and fees—was Rs 5.38 lakh crore, slightly above the year’s goal. A strong showing in income tax and corporate tax collections suggests rising profitability and employment—both signs of a healthy economy.
On the spending side, the government used Rs 46.56 lakh crore, almost 99 per cent of what it had budgeted. More significantly, capital spending—money invested in building roads, railways, and power infrastructure—rose to Rs 10.52 lakh crore, exceeding even revised estimates. Worth mentioning here is that this kind of spending is key for long-term growth. It creates jobs, boosts demand, and attracts private investment.
Subsidies and Revenue Deficit still a Concern
Not all numbers were encouraging. Subsidy spending on food, fertilisers, and fuel hit Rs 4.14 lakh crore—overshooting the revised budget. These subsidies, while necessary for social protection, remain a structural burden.
The revenue deficit, which measures how much the government is borrowing just to meet everyday expenses (as opposed to investments), continues to be a red flag. It signals that routine costs, such as salaries, interest payments, and welfare schemes, still outweigh non-borrowed income.
Looking Ahead: Fiscal Tightrope in FY26
The finance ministry has set an ambitious target to reduce the fiscal deficit to 4.4 per cent of GDP in FY26 and below 4.5 per cent by FY27—a path it committed to back in 2021 after the pandemic pushed the deficit to 9.2 per cent.
Still, the start of FY26 looks promising. As of April 2025, the Centre had used just 11.9 per cent of its full-year fiscal deficit limit—better than 13 per cent during the same period last year. Capital expenditure in April jumped over 60 per cent year-on-year, while revenue spending actually fell slightly.
India met its fiscal deficit target in FY25—but largely due to exceptional support from the RBI and better-than-expected economic growth. That’s a win, but also a warning: one-time gains can’t be relied on forever.
As fiscal pressures mount and global conditions remain uncertain, the path forward will require sustained discipline, smarter spending, and deeper tax and subsidy reforms. The real test lies ahead.
