Fiscal Deficit Meaning, Calculation, Benefits and India’s Latest Fiscal Numbers

Every year, governments across the world present their budgets with the promise of progress, stability and growth, yet the real story lies in the gap between what is earned and what is spent. That gap is known as the fiscal deficit, and it continues to shape how a nation finances its future. Let’s understand the Fiscal deficit meaning in detail!

What is the Fiscal Deficit in India?

A fiscal deficit is the gap between what the government spends and what it earns in a year, without counting any money it borrows. It shows how much the government needs to borrow to meet its expenses. 

• The deficit is usually shown as a percentage of the country’s Gross Domestic Product. 
• A fiscal deficit is not always bad, because borrowed money can be used for development and welfare, but a very high deficit can increase national debt over time.

India’s Fiscal Deficit Rises to 5.73 Lakh Crore in the First Half of FY26

India’s fiscal deficit for April to September stood at 5.73 lakh crore rupees, which is 36.5 percent of the full-year target. This marks an increase compared with the same period last year, when the deficit was 29.4 percent of the annual estimate. For the ongoing financial year, the government is aiming to reduce the overall fiscal deficit to 4.4 percent of GDP, compared with 4.8 percent in the previous year.

Measurement of Government Deficit

The government deficit, or fiscal deficit, is measured as a government’s total expenditure minus its total revenue for a specific period, typically a fiscal year. 

It can be calculated using the fiscal deficit formula.

The deficit is often expressed as a percentage of the country’s Gross Domestic Product (GDP) to show its significance relative to the economy’s size. 

Fiscal Deficit Formula

Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings)

Total expenditure includes revenue and capital spending.
Total receipts include revenue and capital receipts, but exclude borrowings.

Total Expenditure:
This refers to all the money the government spends. It includes revenue expenditure such as salaries, pensions and subsidies, as well as capital expenditure like building roads, bridges and other infrastructure.

Total Revenue:
This is the income the government earns from its own sources. It includes revenue receipts such as taxes and non-tax income like interest, dividends and fees.

Non-Debt Capital Receipts:
These are capital receipts that do not add to the government’s debt. Examples include money received from disinvestment and the recovery of loans previously given by the government.

Borrowings:
Borrowings are not included in the calculation of the fiscal deficit. The deficit itself represents how much the government needs to borrow during that financial year, so borrowings are kept separate from total receipts.

Fiscal Deficit Meaning and How Government Borrowing Influences India’s Financial Stability

• Shortfall in income: The government is spending more than it earns.
• Borrowing requirement: Shows how much the government needs to borrow to fill the gap.
• Indicator of financial health: Helps assess the country’s financial stability.
• Can support growth: A deficit can boost the economy if used for development.
• Risk of rising debt: A large or prolonged deficit adds to the national debt and can affect future interest rates and taxes.

Factors Influencing the Fiscal Deficit

1. Increased government spending
Higher expenditure on public services, infrastructure, defense, and welfare programmes raises the deficit when revenue does not grow at the same pace.

2. Lower revenue collection
A fall in tax collections or reduced earnings from public sector enterprises reduces the government’s income and widens the deficit.

3. Economic downturns
During a recession, businesses earn less and people spend less, which leads to lower tax revenue. At the same time, government spending on welfare rises, increasing the deficit.

4. Unforeseen expenses
Events such as wars, natural disasters, or pandemics require sudden, large-scale spending on relief and reconstruction, pushing up the deficit.

5. Interest payments on existing debt
A substantial part of government expenditure goes toward paying interest on past borrowings. This reduces funds available for other needs and adds to the deficit.

6. High subsidies
Large subsidies on food, fuel, and fertilisers create significant financial pressure and contribute to a higher fiscal deficit.

7. Inefficient tax collection
Weak tax administration, loopholes, and a large informal economy reduce the government’s ability to collect taxes effectively, increasing the deficit.

Want to understand how rising prices and economic changes affect your money? Read our in-depth guide on types of inflation to learn how inflation works, why it happens, and how it impacts your financial decisions.

Are there Any Benefits of Fiscal Deficit

Yes. Fiscal deficit is not always negative.

Here are the key benefits of a fiscal deficit.

1. Supports economic growth
When the economy slows down, higher government spending puts more money into circulation. This increases demand, encourages consumption, and helps stabilise the economy during difficult periods.

2. Funds for term development
A deficit allows the government to invest in major infrastructure such as roads, railways, power projects, schools, and hospitals. These investments raise productivity, improve public services and support long-term economic growth.

3. Creates employment opportunities
Government spending on public projects generates jobs directly and indirectly. This helps reduce unemployment and improve the overall standard of living.

4. Strengthens social welfare
Deficit spending makes it possible to fund welfare schemes, relief measures, and support programmes during crises. This helps protect vulnerable sections of society and reduces inequality.

5. Encourages private investment
Better public infrastructure lowers business costs and risks. This often attracts more private investment, strengthening economic activity.

6. Provides flexibility during emergencies
Running a deficit gives the government financial room to respond to unexpected situations like natural disasters, pandemics, or security challenges, when immediate spending is essential.

7. Helps avoid sudden tax increases
Borrowing allows the government to spread the cost of large, temporary expenses across future years, preventing sharp tax hikes for the current population.

If you’re exploring more financial ratios and economic indicators, check out our detailed blog on what is proprietary ratio to understand how it measures a company’s financial stability.

Conclusion

A well-managed fiscal deficit allows the government to support growth while keeping long-term stability in focus. The current numbers for FY26 show progress towards a lower target, but continued discipline will be essential. Responsible spending, stronger revenue and transparent policy will decide how sustainable this path remains. When the deficit is balanced with care, it strengthens confidence in the economy and protects the nation’s financial future.

Just as disciplined spending strengthens the country’s finances, building personal stability begins with consistent saving. You can open a zero-balance savings account and start setting money aside without maintaining a minimum balance. It is a simple step towards long-term security.

Fiscal Deficit India- FAQs