The fiscal deficit is the most-quoted number in any budget discussion. It is also one of the most frequently misunderstood. This page documents exactly how it is calculated, what the number includes, what it deliberately excludes, and how to read it critically.
The formula
Fiscal Deficit = Total Expenditure − (Revenue Receipts + Non-Debt Capital Receipts)
Equivalently:
Fiscal Deficit = Total Expenditure − Total Receipts + Borrowings
Or, most intuitively:
Fiscal Deficit = Net Borrowings Required to Balance the Budget
The fiscal deficit for FY 2026-27 is ₹16,95,593 crore — 4.4% of GDP.
What goes in: expenditure
Total expenditure includes:
- Revenue expenditure: salaries, pensions, interest payments, subsidies, grants
- Capital expenditure: infrastructure investment, capital grants to states, defence capital, loans to states and PSUs
Interest payments are included in revenue expenditure. This matters because the fiscal deficit is a gross figure — it counts both the interest payment (cash outflow) and the new borrowing (cash inflow). The "primary deficit" subtracts interest to show the underlying structural position.
What goes in: receipts
Non-borrowing receipts include:
- Tax revenue: income tax, corporation tax, customs, excise, GST (Centre's share)
- Non-tax revenue: dividends from PSUs, spectrum auction proceeds, profit transfer from RBI, interest on loans to states
- Non-debt capital receipts: disinvestment proceeds, loan repayments from states/PSUs
Borrowings are excluded from receipts — they are the plug figure, the residual that makes both sides balance. The fiscal deficit is the borrowing requirement.
The off-budget problem
The headline 4.4% is a legally accurate representation of what appears in the Union Budget. It is not the full picture.
Several large borrowings do not appear in the budget:
Food Corporation of India (FCI) borrows from the National Small Savings Fund (NSSF) and commercial banks to finance the national food subsidy. Until FY2020-21, these borrowings did not appear in the fiscal deficit. The Comptroller and Auditor General (CAG) repeatedly flagged this as a transparency gap. From FY21 onwards, food subsidy is largely on-budget — but legacy FCI debt from prior off-budget financing remains.
NHAI, REC, PFC raise bonds guaranteed by the government but secured against future toll receipts or loan repayments. These are contingent liabilities, not recorded as deficit.
State government guarantees for electricity distribution companies (DISCOMs) can crystallise as deficit if the state backstops a default.
The CAG's concept of "public debt" is broader than the budget's fiscal deficit. The Economic Survey typically provides the "total liabilities" figure — approximately ₹183 lakh crore in FY25 — which includes both on-budget and off-budget obligations.
Primary vs fiscal deficit
Primary Deficit = Fiscal Deficit − Interest Payments
If primary deficit > 0, the government cannot cover its current-year expenses without borrowing, even before servicing old debt. India's primary deficit in FY26-27 is approximately ₹1.1 lakh crore (0.3% of GDP).
A primary surplus means the government earns enough to cover all expenses except interest. Reaching a primary surplus is necessary (though not sufficient) for debt sustainability.
Revenue vs capital deficit
Revenue Deficit = Revenue Expenditure − Revenue Receipts
India's revenue deficit in FY26-27 is ₹6.99L Cr (1.8% of GDP). This is the portion of the fiscal deficit that finances consumption (salaries, subsidies, interest) rather than investment. A revenue deficit means the government is borrowing not to build assets but to pay its bills — a sign of structural weakness.
GDP denominator: which GDP?
The deficit-to-GDP ratio uses nominal GDP at market prices. The Union Budget uses the Central Statistics Office's advance estimate. For FY26-27, the nominal GDP denominator used is approximately ₹3,84,82,688 crore (₹384.8 lakh crore).
Small changes in the GDP estimate shift the deficit ratio without any change in actual rupee amounts. The government projecting 10.5% nominal GDP growth vs. 10.1% growth changes the denominator by ₹1.5 lakh crore — enough to move the deficit ratio by ~5 basis points.
What The Public Rupee uses
All fiscal deficit figures on this site use:
- The Union Budget's definition (Consolidated Fund of India basis)
- Nominal GDP from the Central Statistics Office advance estimate
- The RBI Handbook of Statistics for historical series
We note where off-budget financing is relevant and link to the CAG audit reports that quantify it.