Fiscal deficit and the Budget
What the Government earns, spends and borrows, and how to read the three deficit numbers
Union Budget 2026-27 (1 February 2026); Government accounts to the end of August 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what 'fiscal deficit of 4.3%' means: 4.3% of what, and who lends the money. Most people know the phrase and not the arithmetic. This deck is about the Central Government's budget only; State budgets are separate.
The fiscal deficit is the Government's total borrowing requirement for a year, to pay for what it spends.
It is the gap between total spending and all receipts other than borrowing. The Budget states it in rupees and as a share of GDP.
Trainer notes
Budget at a Glance says the fiscal deficit 'is reflective of the total borrowing requirement of Government'. Strictly, a small part can also be met by drawing down the Government's cash balance, which the Budget shows as a separate line.
Two accounts, four boxes
Every rupee goes in a revenue box or a capital box. The test is whether an asset or debt changes.
Revenue receipts
Taxes, and non-tax income such as dividends, interest and fees. They create no debt and sell no asset.
Revenue spend
Day-to-day spending such as salaries, pensions, subsidies, interest and grants. It creates no asset for the Centre.
Capital receipts
Borrowings, recovery of loans given earlier, and other receipts such as sale of stakes. A debt rises or an asset falls.
Capital spend
Spending that creates an asset, such as roads, railways and equipment, and loans the Centre gives out.
Source: Budget at a Glance 2026-27, Ministry of Finance, 1 Feb 2026 (structure of the receipts and expenditure table).
Trainer notes
Two points that trip people up. Interest paid on past borrowing is revenue spending, not capital spending. Grants given to States to build assets are counted as revenue spending because the asset does not belong to the Centre; the Budget shows them separately and calls revenue deficit less these grants the 'effective revenue deficit'.
Three deficits from one set of numbers
THE SET-UP (ASSUMED)
One year of an imaginary government, in ₹ crore.
Revenue receipts 700. Loan recoveries and stake sales 20.
Revenue spending 850, of which interest 280. Capital spending 200.
- Revenue deficit = revenue spending − revenue receipts = 850 − 700 = ₹150 crore.
- Total spending = 850 + 200 = ₹1,050 crore. Receipts other than borrowing = 700 + 20 = ₹720 crore.
- Fiscal deficit = 1,050 − 720 = ₹330 crore. This is the amount to be borrowed.
- Primary deficit = fiscal deficit − interest payments = 330 − 280 = ₹50 crore.
Result: Fiscal deficit ₹330 crore. Revenue deficit ₹150 crore. Primary deficit ₹50 crore.
Illustration with assumed figures. Not a forecast.
Trainer notes
Work it on a whiteboard. The revenue deficit shows how much of day-to-day spending is not covered by day-to-day income. The primary deficit shows the borrowing that is left after setting aside interest on old debt: here ₹280 crore of the ₹330 crore equals the interest bill. All figures are invented.
The Budget's own numbers
₹ crore, with per cent of GDP in brackets. RE is the Revised Estimate. BE is the Budget Estimate.
| Item | 2025-26 (RE) | 2026-27 (BE) |
|---|---|---|
| Total expenditure | 49,64,842 | 53,47,315 |
| Interest payments (part of the above) | 12,74,338 | 14,03,972 |
| Revenue deficit | 5,26,764 (1.5%) | 5,92,344 (1.5%) |
| Fiscal deficit | 15,58,492 (4.4%) | 16,95,768 (4.3%) |
| Primary deficit | 2,84,154 (0.8%) | 2,91,796 (0.7%) |
Source: Budget at a Glance 2026-27, Ministry of Finance, 1 Feb 2026. GDP for 2026-27 is taken there as ₹393,00,393 crore, 10% above the 2025-26 Advance Estimate.
Trainer notes
Check the arithmetic with the room: 16,95,768 minus 14,03,972 is 2,91,796, the primary deficit. Both columns are estimates, not final accounts. The Controller General of Accounts' unaudited Provisional Accounts for 2025-26 show a 2025-26 fiscal deficit of ₹15,19,169 crore, 97.5% of the Revised Estimate. Revenue receipts are ₹33,42,323 crore (RE) and ₹35,33,150 crore (BE).
How the 2026-27 deficit is financed
| ₹ lakh crore | |
|---|---|
| Government bonds (net) | 11.73 |
| Small savings | 3.87 |
| Treasury bills | 1.30 |
| Other items (net) | 0.06 |
Read the chart
- The four bars sum to the fiscal deficit of ₹16.96 lakh crore.
- Net borrowing is new bonds sold minus bonds repaid or bought back. It is budgeted at ₹11.73 lakh crore.
- Gross borrowing, the total value of bonds to be sold, is budgeted at ₹17.20 lakh crore.
- Small savings are deposits in government savings schemes, lent to the Government.
Sources: Budget at a Glance 2026-27 (Sources of Financing; last bar is our sum of four items); FRBM Statements, Feb 2026, para 46.
Trainer notes
Exact figures in ₹ crore: market borrowings through dated securities 11,73,210; securities against small savings 3,86,772; short-term borrowing (Treasury bills etc.) 1,30,000. 'Other items' nets external debt 15,385, State Provident Funds 3,500, a draw-down of cash balance 32,702 and other receipts of minus 45,801, which comes to 5,786. Budget 2025-26 had gross and net borrowing of ₹14.82 lakh crore and ₹11.54 lakh crore.
The consolidation path
| Fiscal deficit, % of GDP | |
|---|---|
| 17-18 | 3.5 |
| 18-19 | 3.4 |
| 19-20 | 4.6 |
| 20-21 | 9.2 |
| 21-22 | 6.7 |
| 22-23 | 6.5 |
| 23-24 | 5.5 |
| 24-25 | 4.8 |
| 25-26 | 4.4 |
| 26-27 | 4.3 |
The announced anchor
- The deficit reached 9.2% of GDP in 2020-21 and has been lower in each year since.
- The stated aim is now about debt: central government debt of 50±1% of GDP by 2030-31.
- Debt is estimated at 56.1% of GDP in 2025-26 (RE) and 55.6% in 2026-27 (BE).
- The fiscal deficit is the yearly operating target used to reach it.
Sources: Budget at a Glance 2026-27 (Deficit Trends; Trends in Debt); Budget Speech 2026-27, paras 92-94; FRBM Statements, Feb 2026, paras 37 and 55.
Trainer notes
Fiscal consolidation means bringing the deficit and the debt down as a share of GDP. The debt figures are 'debt as defined in the FRBM Act', which includes external debt at current exchange rates and extra-budgetary liabilities. The Government has not published a deficit number for each year to 2030-31: it says it will keep the deficit each year such that central debt is on a declining path. Years run April to March.
Deficit and bond yields: the mechanism
The Government borrows
It meets most of the deficit by selling bonds. Gross sales of ₹17.20 lakh crore are budgeted for 2026-27.
Buyers have limited money
Banks, insurers, pension funds and mutual funds buy these bonds from the same pool of savings that companies borrow from.
More supply needs a price
If the supply of bonds grows faster than demand for them, buyers ask for a higher yield. Other forces can offset this.
Private borrowers follow
Company bonds are usually priced as a spread over government bond yields. Economists call a squeeze on private borrowing 'crowding out'.
Source for the borrowing figure: Statements of Fiscal Policy under the FRBM Act, Feb 2026, para 46. The steps describe a mechanism. They are not a forecast.
Trainer notes
Keep this descriptive. Yields also respond to inflation, RBI's policy rate and bond operations, global yields and foreign flows, so a larger borrowing programme does not by itself tell you where yields will go. RBI's Governor said on 7 October 2026 that G-sec yields hardened from mid-August amid tensions in West Asia, a rise in global bond yields and higher crude oil prices. See the deck 'Bond prices and yields' for what a yield change does to a debt fund.
Three deficits, three different things
| Deficit | Whose gap, and between what | Latest full-year figure |
|---|---|---|
| Fiscal deficit | The Central Government's total spending minus its receipts other than borrowing. Counted in rupees. | In 2025-26: ₹15,19,169 crore (provisional); RE: 4.4% of GDP |
| Trade deficit | The whole country's imports of goods minus its exports of goods. Usually quoted in US dollars. | US$ 337.3 billion (goods, 2025-26, preliminary) |
| Current account deficit | The goods gap after adding net earnings from services, income and transfers such as remittances. | In 2025-26: US$ 25.2 billion, 0.6% of GDP (preliminary) |
Sources: Budget at a Glance 2026-27; CGA Provisional Accounts 2025-26 (unaudited); RBI press release, balance of payments, Q4 2025-26, 8 Jun 2026.
Trainer notes
The first is about the Government's budget. The other two are about the whole country's dealings with the rest of the world, including households and companies. They do not have to move together: in January-March 2026 India ran a current account surplus of US$ 7.1 billion while the Government ran a fiscal deficit. The deck 'Balance of payments and CAD' covers the second and third in detail.
Where things stand
Budget Estimates are plans made on 1 February 2026. The monthly accounts show progress against them.
- FISCAL DEFICIT (BE)
- 4.3%Of GDP for 2026-27, or ₹16,95,768 crore. 2025-26 Revised Estimate: 4.4%.
- APRIL-AUGUST 2026
- 41.9%Share of the full-year estimate reached in five months: ₹7,10,249 crore.
- CENTRAL DEBT (BE)
- 55.6%Of GDP for 2026-27, as defined in the FRBM Act. Aim: 50±1% by 2030-31.
- 10-YEAR G-SEC YIELD
- 6.96%Yield on the 6.94% GS 2036 on 1 September 2026.
Sources: Budget at a Glance 2026-27; Controller General of Accounts, Union Government Accounts at a Glance, end of August 2026 (unaudited); RBI Current Rates, 1 Sep 2026.
Trainer notes
The Controller General of Accounts cautions that the deficit in monthly accounts 'is not necessarily an indicator of fiscal deficit for the year', because receipts and spending do not arrive evenly. At the same point in 2025-26 the figure was 38.1%. State the facts and stop; we do not predict whether the estimate will be met. Market figures are shown with a lag of at least 30 days, in line with SEBI's norms on price data used for education.
Four things people get wrong
Misconception'A deficit means the Government lost money.'
What is trueSpending is above receipts other than borrowing. Part of that spending builds assets: capital expenditure is ₹12,21,821 crore in 2026-27 (BE).
Misconception'Revenue and fiscal deficit are the same.'
What is trueThe revenue deficit covers day-to-day spending only. The fiscal deficit also counts capital spending, less loan recoveries and similar receipts.
Misconception'A fiscal deficit is a trade deficit.'
What is trueOne is the Government's budget gap in rupees. The other is the country's gap in goods trade with the world. They can move in different directions.
Misconception'The fiscal deficit is 6.8% of GDP.'
What is trueEarlier Budgets gave higher figures for their own years. The 2026-27 Budget Estimate is 4.3%. Check the year before you quote one.
Trainer notes
On the fourth point: older material may quote fiscal and revenue deficit figures from the Budget of its own year. The comparable Budget Estimates for 2026-27 are 4.3% and 1.5%. Older material also pre-dates the debt-to-GDP aim announced in Budget 2025-26.
Check yourself
Question 1: Revenue receipts are ₹500 crore, revenue spending ₹620 crore, capital spending ₹130 crore and loan recoveries ₹10 crore. Find the revenue deficit and the fiscal deficit.
Answer: Revenue deficit = 620 − 500 = ₹120 crore. Total spending = 620 + 130 = ₹750 crore; receipts other than borrowing = 500 + 10 = ₹510 crore; fiscal deficit = 750 − 510 = ₹240 crore. (Assumed figures.)Question 2: In the same example, interest payments are ₹200 crore. What is the primary deficit, and what does it tell you?
Answer: Primary deficit = 240 − 200 = ₹40 crore. It is the borrowing left after setting aside interest on past debt.Question 3: What debt level has the Central Government said it aims to reach, and by which year?
Answer: Central government debt of 50±1 per cent of GDP by 2030-31. The estimate for 2026-27 (BE) is 55.6%, against 56.1% for 2025-26 (RE).
Sources and disclaimer
Sources for the figures in this explainer
- Receipts, expenditure, the three deficits, sources of financing, deficit and debt trends, GDP assumption: Budget at a Glance 2026-27, Ministry of Finance, 1 Feb 2026.
- Debt aim of 50±1% of GDP by 2030-31; debt of 55.6% (BE 2026-27) and 56.1% (RE 2025-26): Budget Speech 2026-27, paras 92-94, 1 Feb 2026.
- Gross borrowing ₹17.20 lakh crore and net ₹11.73 lakh crore through dated securities (BE 2026-27): Statements of Fiscal Policy under the FRBM Act, Feb 2026, paras 37, 46 and 55.
- Fiscal deficit April-August 2026, ₹7,10,249 crore, 41.9% of BE: Controller General of Accounts, Union Government Accounts at a Glance, end of August 2026 (unaudited).
- Goods trade deficit and current account deficit for 2025-26: RBI Press Release 2026-2027/412, 8 Jun 2026 (preliminary data).
- 10-year G-sec yield 6.9570% on 1 Sep 2026: RBI Current Rates, rbi.org.in (archived 2 Sep 2026). Remarks on yields: RBI Governor's Statement, 7 Oct 2026.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).