India Faces Estimated Budget Deficit of Over Rs 1.15 Lakh Crore

Fiscal Deficit Woes: Excise Duty Cuts May Hit Rs 1.15 Lakh Crore Revenue

The Indian government is facing a potential revenue hit of Rs 1.15 lakh crore from the recent cut in excise duties, which could force the government to make difficult trade-offs. This shortfall could widen the fiscal deficit by approximately 0.3 percentage points, assuming spending remains in line with Budget estimates.

The magnitude of the gap is substantial, equivalent to 2.2 percent of the FY27 Budget, which is pegged at Rs 53.5 lakh crore. This is comparable to the entire education outlay of Rs 1.4 lakh crore or almost twice the allocation for PM-KISAN (Rs 63,500 crore).

Historically, capital expenditure has been the first lever to bear the brunt of such adjustments. Government data shows that capex spending has often fallen short of budgeted targets, with undershooting in recent years. For instance, the government spent Rs 10.96 lakh crore on capex in FY26, compared to the budgeted Rs 11.21 lakh crore, leaving a gap of Rs 20,000 crore.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

A similar pattern could re-emerge, especially since Rs 1.15 lakh crore is equivalent to approximately 40 percent of railway capex or over half of defence capex. Centrally sponsored schemes and flagship programmes, such as PM Awas Yojana and Jal Jeevan Mission, may also face compression due to spending inefficiencies and underutilization.

Subsidies, particularly fertiliser subsidies, pose an added risk, with a budgeted allocation of Rs 1.7 lakh crore that could rise further if global prices remain elevated. This leaves policymakers balancing two competing priorities: maintaining fiscal discipline while sustaining growth momentum.