Fiscal deficit may stay below estimate at 4.2-4.3% of GDP

Higher-than-expected dividends from RBI, PSUs may provide room to maintain spending

- Rhik Kundu & Subhash Narayan

The Centre is likely to narrow its fiscal deficit to 4.2-4.3% of gross domestic product (GDP) in 2025-26, better than its target of 4.4%, driven by higher-than-anticipated dividends from state-run enterprises, banks and the Reserve Bank of India (RBI).

A narrow gap in revenue and expenditure will provide the central government with added fiscal space to maintain capital spending to keep the growth engine humming, two people aware of the development told Mint.

While the 2025-26 budget pegs the fiscal deficit at 4.4% of GDP, the actual figure is likely to come in lower, much like in 2024-25, said the first official cited above on the condition of anonymity. "This reflects the government's commitment to fiscal discipline even as it balances growth imperatives," the person said.

"Stronger revenue flows will allow room to outperform targets without compromising on capital expenditure," the person added.