The Centre’s fiscal deficit eased to 54.5% of the annual target (Budget Estimates for FY26) during April-December period, compared to 56.7% of the respective target a year ago, partially due to an improvement in tax revenues which produced a fiscal surplus for the month of December.
This bolsters the optimism that the fiscal deficit target of 4.4% of the GDP would be met.
According to data released by the Controller General of Accounts (CGA), the fiscal deficit in April-December of FY26 stood at Rs 8.55 lakh crore compared with Rs 9.14 lakh crore in the year-ago period.
Tax Revenue Surges
The gross tax revenues expanded by a resounding 32.35% in December, pulling up the nine-month growth to 8.5% during April-December period. Corporation tax recorded a growth of 12.4% on-year upto December, higher than the budgeted 9.7% for FY26.
In the indirect tax regime, Customs duty collection grew 15% in April-December period against 3.1% projected growth for FY26. The Union excise duties collection recorded a growth of 9.9% up to December against the Budget’s 5.6% estimate for FY26.
Sakshi Gupta, Principal Economist at HDFC Bank, said the fiscal deficit eased due to stronger net tax receipts with healthy advance tax payments in December.
The Centre’s advance tax collections for the third quarter of 2025-26 (Q3) from companies, LLPs and individuals rose by 4.27% on year. In absolute terms, Q3 advance tax collections stood at Rs 7.88 lakh crore as on December 17.
However, Aditi Nayar, Chief Economist at ICRA, said a healthy expansion in tax revenues, especially corporation tax, customs duty and IGST, along with a year-on-year contraction in capex led to a fiscal surplus in the month of December 2025.
The government’s capex contracted for the third consecutive month in December 2025, marking a decline of 23% in Q3 FY2026, which may impact the GDP growth in the quarter.
Annual Target Alignment
During the period under review, capex rose by 14.97% on year to Rs 7.87 lakh crore or 70.3% of the annual target as against 61.7% of the relevant target achieved in the year-ago period. The capital expenditure needs to contract by 9% on-year during Q4 FY2026 to remain within the FY2026 BE of Rs 11.21 lakh crore.
Yet, the Centre’s net tax receipts surged by 5.21% to Rs 19.39 lakh crore. Net tax revenues need to grow by 36.94% in January-March to meet the annual target of Rs 28.73 lakh crore, which is a daunting task.
Economists expect the government to maintain the fiscal target of FY26 and pegged the fiscal deficit to be about 4.3% of GDP in FY27. The centre has estimated to bring down the fiscal deficit to 4.4% of GDP in FY26 from 4.8% in FY25.
“Overall, we expect the potential miss on the taxes side to be offset by higher-than-budgeted non-tax revenues and sizeable expenditure savings on the revenue spending front. As a result, we do not anticipate the FY26 RE to indicate a higher fiscal deficit than the FY26 BE,” Nayar said.