India Economics Weekly: Fiscal & inflation update - uncertainty persists

Research evidence excerpt

India Economics Weekly: Fiscal & inflation update - uncertainty persists

Deutsche Bank

Research

Economics Date

India Economics Weekly 9 July 2026

Fiscal & inflation update - uncertainty persists

Kaushik Das

* Fiscal update (April-May’26): India’s fiscal accounts for April–May FY27 suggest Chief Economist

that the government has started the year with a deliberate growth-supportive +91-22-7180-4909

fiscal stance, marked by strong expenditure growth and continued emphasis on

public investment. The fiscal deficit stood at INR 1.62 trn, equivalent to 9.6% of

the FY27 Budget Estimate, compared with just 0.8% of the full-year target during

the same period last year. The deterioration reflects a combination of front-

loaded spending, weaker tax collections and subsidy-related pressures, rather

than a structural weakening in the fiscal position. At the same time, expenditure

quality remains constructive, with capital spending rising 13.4%yoy to INR 2.51

trn, supporting infrastructure activity and domestic demand.

On the revenue side, the picture is more mixed. Gross tax revenues grew only

1.8%yoy in April–May, weighed down by a sharp decline in excise collections

following the government's reduction in fuel taxes (excise duty of petrol and diesel

was cut by INR 10/litre in March) amid elevated oil prices earlier in the year. Net

tax revenues contracted modestly, while softer GST collections also reflected

weak indirect-tax momentum. Offsetting this weakness, however, was an

exceptionally strong non-tax revenue performance, driven by the RBI's record

dividend transfer, which has already delivered a significant portion of the

government's budgeted non-tax receipts for FY27.

The key watchpoint in the fiscal data is subsidies. Combined spending on food,