The Union finance ministry has launched a comprehensive initiative as part of its inter-ministerial consultation for preparing the Budget for 2027-28. According to reports from Business Standard, the finance ministry has asked all Union ministries and departments to present realistic estimates for both their revised numbers for 2026-27 and the Budget numbers they would like to project for 2027-28. The objective of this directive is to obviate the need for frequent mid-year reappropriation of funds on account of either underspending or overspending. This initiative comes just about a month before the formal pre-Budget consultations begin in mid-October. As per expert analysis, the finance ministry appears keen to avoid a repeat of the underspending that has marked many of the government's flagship schemes in recent years.
The government met its fiscal deficit target of 4.4 per cent of gross domestic product (GDP) in 2025-26, despite a 7.5 per cent drop in net tax collections over the Budget Estimates. However, the deficit target was met through a sharp compression in expenditure, with the government's revenue spend shrinking by 2.7 per cent and capital expenditure recording a 4.6 per cent shortfall, compared with the Budget Estimates. A 9.6 per cent rise in non-tax revenue over the Budget Estimates, largely thanks to higher dividends from the Reserve Bank of India and state-owned banks, helped offset some of these challenges. The government's net tax revenue has shown remarkable resilience, clocking a growth rate of over 27 per cent to ₹8.4 trillion against a budgeted target of 9 per cent for the full year, while non-tax revenues grew by about 5 per cent to ₹4.2 trillion, though the Budget had projected no growth at all.
According to Business Standard reports, the government was unable to spend between 25 and 100 per cent of the money allocated to several schemes in sectors such as health infrastructure, urban and rural housing, irrigation, interlinking of rivers, drinking water mission, rural roads, rural livelihood programmes, nuclear power projects, telecom infrastructure, artificial intelligence mission, semiconductor development project, production-linked incentive schemes, investment and infrastructure fund, research, development and innovation scheme, and emergency credit lines for micro, small and medium enterprises. Barring a few sectors like defence, railways and roads, the underspending was widespread across multiple important government initiatives. Expert analysis reveals that meeting the fiscal deficit target is desirable, but the underspending of allocated resources for many important schemes is a cause for concern, which if not addressed may well neutralise the larger gains from fiscal consolidation.
At the end of December 2025, approximately ₹69,000 crore was lying unused with the states under 53 schemes, each with an annual Budget allocation of more than ₹500 crore. The total outlay for such schemes was over ₹5 trillion. As reported by Business Standard, this underutilisation resulted in the outlay for these schemes under the Revised Estimates for 2025-26 being slashed by over 25 per cent to ₹3.76 trillion. Similarly, in 2024-25, the problem of underspending by the states was quite stark, with the Budget for 52 schemes having an annual allocation of over ₹500 crore providing ₹4.94 trillion, but the Revised Estimates had slashed it by over 22 per cent to ₹3.82 trillion, largely because an estimated ₹1.6 trillion was lying unused with the states and Union Territories at the end of December 2024. The states' non-utilisation of money allocated for over 50 schemes is a cause for serious concern, as it appears that these resources could have been allocated to benefit other, more needy sectors if proper assessment of specific needs had been made.
The Union government's total expenditure in the first four months of 2026-27 has grown by about 13 per cent to ₹17.62 trillion over the same period of 2025-26, against a budgeted rise of 8 to 9 per cent for the full year. According to Business Standard, the budgeted rise in total expenditure for the full year was projected at 8 to 9 per cent. The more worrying reason for the expenditure slippage is the government's subsidies on fertiliser, food and petroleum, which at ₹4.1 trillion were expected to be lower than the amount spent in 2025-26, but instead shot up by 35 per cent to ₹1.53 trillion in the first four months of current financial year. These major subsidies account for about 10 per cent of total revenue expenditure. The government boosted its capital expenditure by 30 per cent to ₹4.5 trillion during this period, but such spending exceeding the budgeted level should not be a cause for concern as capex is only about 23 per cent of total expenditure.
