India’s capital expenditure fell 28% year-on-year (YoY) in October. This is mainly due to lower state transfers, while defence spending stayed firm. International brokerage house, Goldman Sachs, noted that this marks one of the steepest monthly declines this fiscal year and indicates a move to contain the deficit.
The fiscal deficit for April to October stood at 4% of GDP, or 52.6% of the full year target, which Goldman Sachs said is the lowest proportion for this period since 2011, excluding the Covid years. The global brokerage house expects the Centre to meet its 4.4% deficit target for FY26 by moderating expenditure like capex.
Goldman Sachs on India: Data and revenue mix
Goldman Sachs highlighted that total receipts fell 18.4% year on year, and revenue receipts fell 17%. Income tax collections rose 26.9% year on year but dropped 23% month on month. Corporate tax collections increased 76.4% year on year but fell sequentially.
Indirect taxes contracted 5% year on year. GST collections declined 11.4% after rate cuts in late September. Goldman Sachs noted that GST receipts reached only 51.5% of the full-year estimate by October.
Non tax revenues fell 45.3% year on year during the month but remained high on a fiscal year to date basis due to earlier RBI dividends.
Goldman Sachs on India: Expenditure contracts
Expenditure contracted across several categories in October. Goldman Sachs said total expenditure fell 11% year on year. Revenue expenditure dropped 8%, though the components moved in different directions.
Interest payments rose 17.5% year on year. Subsidies increased 30% year on year. At the same time, current expenditure excluding interest and subsidies fell 25.5%. Goldman Sachs said the sequential rise in current expenditure came mainly from higher interest payments.
Capital expenditure was the most affected. Goldman Sachs said capex declined 28.3% year on year in October. The contraction came largely from lower transfers to states, which dropped sharply after several months of volatility. Spending by infrastructure ministries, such as Railways and Road Transport and Highways, remained subdued during the month. Defence capex was the only category that continued to show strength.
Sequentially, Goldman Sachs observed a 32% decline in capital expenditure from September. The international brokerage house said this indicates active expenditure control, especially in outlays that can be deferred without immediate operational disruption.
For the fiscal year to date, capex reached 55.1% of budget estimates. Revenue expenditure reached 50.9%, and total expenditure stood at 51.8%. These ratios, Goldman Sachs said, show that the government has used just over half of its annual spending envelope by the end of October, leaving room to adjust allocations depending on revenue flows in the remainder of the year.
Goldman Sachs on India: Impact of muted capex
A fall of 28% in public capex in a single month has wide macro and sectoral implications. Transfers to states support road construction, urban development, water projects, and public works that form the backbone of India’s infrastructure momentum. When these transfers decline sharply, project timelines slow, contractor receivables lengthen, and state-level planning becomes more uncertain.
Goldman Sachs on India: The lower GST impact
At the same time, October’s weakness in income tax and GST collections complicates fiscal management. Income tax and corporate tax receipts displayed strong year-on-year performance but weakened sharply on a sequential basis. GST collections, affected by rate changes, are expected to remain muted. Goldman Sachs said this will likely extend the pressure on the receipts side for the coming months.
This environment increases the likelihood that the Centre will continue using expenditure as the main tool for achieving its fiscal target. Capex is often the first category to be adjusted, because many projects can be rescheduled without immediate economic disruption. But repeated tightening can delay infrastructure momentum, which has been a key component of economic activity in recent years.
The rise in interest payments also absorbs a larger share of available fiscal resources. With interest payments reaching 52.8% of budget estimates by October, Goldman Sachs noted that fiscal space for discretionary spending becomes narrower as the year progresses.
Goldman Sachs on India: Subsidy spend on the radar
Subsidy spending rising 30% year on year in October adds another layer of complexity. These payments are largely non-discretionary and, in some categories, can exceed estimates due to commodity price movements or policy changes.
In other words, the fiscal balance is being shaped simultaneously by weaker tax inflows, higher committed outflows, and the need to keep the deficit within target.
Goldman Sachs on India: Consolidation to continue
Goldman Sachs expects consolidation to continue through the remainder of FY26. With receipts running below pace, the firm said expenditure reprioritisation will likely remain the primary instrument for meeting the deficit target.
The firm projects that muted GST and uneven direct tax trends will persist for now, increasing the risk of further adjustments to infrastructure spending if revenue does not stabilise.