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Informist, Tuesday, May 19, 2026

 

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--Fin min source: Aim to avoid raising FY27 market borrowing, at least in H1 
--Fin min source: Looking at spectrum auction to shore up FY27 revenue 
--Fin min source: Looking at asset sale, divestment to raise FY27 revenue 
--Fin min source: To spend prudently to ensure essential spending is not hit 
--Fin min source: Aim is to not reduce FY27 capex spending 
--Fin min source: Non-urgent schemes likely to be pushed back for now 

 

By Sagar Sen and Priyasmita Dutta

 

NEW DELHI – The finance ministry will refrain from increasing the government's market borrowing in the financial year 2026-27 (Apr-Mar) despite global headwinds leading to slower growth and the possibility of lower tax collections. Instead, it will focus on keeping a close watch on its expenses and will raise funds from avenues such as spectrum auction, asset monetisation, and disinvestment, a senior finance ministry official told Informist late Monday.

 

"The guiding principle that we are working under is not to let market borrowing for the current year go higher than already budgeted for," the official told Informist. "It is already at a high level, so we do not want to push it even further, at least in the first half of the fiscal year." 

 

The official said the finance ministry is discussing various options through which more resources can be generated. "The options that are being looked at include spectrum auction, asset monetisation, and expanding the list of companies where government stake can be sold," the official said.

 

The official, however, said these discussions are still at a nascent stage. The Budget has projected receipts from the telecommunications sector at INR 1.17 trillion, which is 34% lower than the revised estimate of INR 1.78 trillion for FY26. The government also aims to raise INR 800 billion as miscellaneous capital receipts through the divestment of its stake in public-sector undertakings and asset monetisation during the year.

 

The government is facing a revenue hit of INR 1.65 trillion from the cut in excise duty on petrol and diesel. On top of it, if direct tax collections grow at 5% in FY27, the same as the growth witnessed in FY26, the direct tax collection shortfall would be over INR 2.4 trillion. The excise duty cut and lower tax collections could lead to a total revenue shortfall of INR 4 trillion. Since the government shares around 35% of central taxes with the states, the net impact of the revenue shortfall on the Centre's Budget is likely to be over INR 2.5 trillion. On the other hand, expenditure is also likely to increase by at least INR 2 trillion on account of higher fertiliser and petroleum subsidies.

 

The Centre has set a gross borrowing target of INR 16.09 trillion for FY27, which will mean a borrowing of INR 11.73 trillion net of repayments of past loans and borrowing through treasury bills, which are short-term instruments with maturity of up to one year. In Apr-Sept, the government will borrow INR 8.20 trillion through dated securities. On a net basis, the government's borrowing in Apr-Sept will be INR 5.73 trillion.

 

The finance ministry has drawn up a plan for more prudent use of its resources to ensure essential expenditures are not affected, another finance ministry official said. The expenditure department is trying to delay financial allocations for some schemes so that the money is freed up for more important items on the pecking order, such as the fertiliser and petroleum subsidies.

 

The Budget has allocated INR 1.71 trillion for fertiliser subsidy in FY27, 8.4% lower than the revised estimate of FY26, and INR 121 billion for petroleum subsidy, down 20.1% from last year. Any increase in these subsidies will increase the government's fiscal deficit.

 

"There are targeted schemes announced in the Budget which can be pushed back for now... it is important money keeps flowing towards subsidy payouts and capital expenditure," the second official said.

 

The government has resorted to rationalising expenditure in the past to meet its fiscal deficit target. That, however, is ruled out this year. The official clarified that the government will not lower allocation for capital expenditure to redirect funds towards subsidies.

 

"Capital expenditure will continue, it will support economic growth even amid volatile times," the second official said. The government has projected its capital expenditure for FY27 at INR 12.22 trillion, or about 4.4% of GDP, up from the revised estimate of INR 10.96 trillion in FY26.

 

Expenditure Secretary Vumlunmang Vualnam went on record earlier this month to say the government will continue to focus on capital expenditure despite the limited fiscal space to keep up the growth momentum in the Indian economy amid the current global conditions.

 

The first official said the finance ministry will try not to increase its borrowing at a time when it is looking to bring the debt-to-GDP ratio down to 55.6% of GDP in FY27 from 56.1% in FY26. Any higher borrowing will also increase the interest burden of the government, the official said. The yield on the 10-year benchmark government bond has risen 48 basis points since the war in West Asia began on Feb. 28. The yield was at a two-year high of 7.144% Monday.

 

The war in West Asia has introduced the possibility of slow economic growth, leading to lower direct and indirect tax collections for the government, while the finance ministry may also have to spend more money to support the economy through higher subsidies. The Strait of Hormuz has been shut for more than two months because of the war, and this has pushed up global crude oil prices by over 60%. India's oil import bill is expected to rise sharply since the country imports over 85% of its domestic crude oil needs.

 

To absorb some of the price shock caused by higher crude oil prices, the government has cut the excise duty on petrol to INR 3 per litre from INR 13 per litre and that on diesel to zero from INR 10 per litre. This will entail a significant loss of revenue to the government. Moreover, the government's fertiliser subsidy is also likely to rise sharply this year due to the increase in gas prices. The government is also likely to have to compensate oil marketing companies for their losses on account of subsidised sales of liquified petroleum gas as well as petrol and diesel.

 

In the Budget presented on Feb. 1, the government had set a fiscal deficit aim of 4.3% of GDP. However, it has been revised to 4.5% of GDP since then, after a downward revision in the size of the GDP for earlier years under the new series of data. In absolute terms, the fiscal deficit for FY27 is pegged at INR 16.96 trillion. The current geopolitical environment will make it extremely difficult for the government to meet the fiscal deficit target, even at 4.5% of GDP.  End

 

Edited by Rajeev Pai

 

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