The Centre’s fiscal deficit widened to 62.3% of the annual target during April-November period, compared to 52.5% of the respective target a year ago, due to a surge in capital expenditure growth while the net tax revenues continued to contract.
The fiscal deficit in April-November of FY26 stood at Rs 9.76 lakh crore compared with Rs 8.46 lakh crore in the year-ago period.
However, analysts don’t expect a fiscal slippage given that potential shortfall in tax receipts could be offset by higher-than-budgeted non-tax revenues and savings in revenue expenditure.
The fiscal deficit for the current fiscal is targeted at 4.4% of the GDP.
Capex Frontloading vs. Tax Revenue Challenges
During the period under review, capex rose by 28% on year to Rs 6.58 lakh crore or 58.7% of the annual target as against 46.2% of the relevant target achieved in the year-ago period. Given the frontloading seen in the first half, capex needs to contract by 14% in the remaining four months to remain within the FY26 BE of Rs 11.2 lakh crore.
Aditi Nayar, Chief Economist at ICRA, anticipates the government to enhance the allocation for capex somewhat, limiting the contraction in the last four months of the fiscal.
The Centre’s next tax receipts contracted by 3.4% to Rs 13.93 lakh crore. Net tax revenues need to grow by 36.76% in December-March to meet the annual target of Rs 28.73 lakh crore, which is a daunting task.
The gross tax revenue (GTR) grew by just 3.3% on year in April-November 2025, amid a 6.78% rise in income tax collections, and a 7.78% growth in corporate tax collections. According to ICRA, while the performance of direct taxes improved, that of indirect taxes remains subdued post the Goods and Services Tax rationalisation. Within indirect taxes, customs duties contracted by 7.3% while Central GST and excise collections rose by 5.39% and 9.25% respectively.
ICRA is apprehensive that gross tax revenues will undershoot the budgeted target of Rs 42.7 lakh crore by about Rs 1.5 lakh crore. “Integrated GST settlement between the Centre and the states over the recent months appears to have dampened the gross tax revenues of the GoI in 8 months of FY2026,” Nayar said.
Offsetting Shortfalls
The government’s non-interest non-subsidy revenue expenditure has declined by 4.4% during April-November which implies that this needs to expand by a high 30% during the last four months to meet the FY26BE. This appears unlikely and could lead to sizeable savings, which would offset the shortfall on the receipts side. A Rs 1.5 lakh crore cut in expenditure on this account would still imply a required growth of 11% during the last four months, which seems reasonable.
The centre has estimated to bring down the fiscal deficit to 4.4% of GDP in FY26 from 4.8% in FY25. Besides tax revenue challenges, the ratio is also facing headwinds from a lower nominal GDP size than estimated in the budget.
