Fiscal Deficit at 36.5% of FY26 Target in April–September Period, Says Government Data

Fiscal Deficit Edges Higher in H1 FY26 as Spending Rises

India’s fiscal deficit for the first half of FY26 (April–September) stood at 36.5% of the full-year target, slightly higher than 29.4% recorded during the same period last year, according to data released by the Controller General of Accounts (CGA) on October 31.

The uptick in deficit reflects the government’s accelerated capital expenditure (capex) and relatively slower growth in tax revenues during the first six months of the fiscal year.

The government has so far utilised 51.8% of its total capex outlay of ₹11.2 lakh crore, marking a significant jump from 37.3% in the same period last year. This highlights a sustained push toward infrastructure development, public asset creation, and long-term growth investment, consistent with the Union Budget’s pro-growth agenda.

Capital Expenditure Momentum Remains Strong

Of the ₹5.8 lakh crore spent on capital expenditure so far this year, ₹1.5 lakh crore was disbursed in September alone, representing a 30% increase year-on-year. In comparison, the government had spent ₹1.6 lakh crore in April, signalling a consistent and front-loaded approach to capital deployment.

Loan disbursals under the central capex scheme also doubled year-on-year, rising from ₹55,398 crore in April–September FY25 to over ₹1.1 lakh crore in the same period this year.

This steady acceleration in capital spending aligns with the government’s strategic focus on expanding infrastructure, manufacturing capacity, and logistics efficiency, all of which are key levers for sustaining economic growth above 7%.

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Government Spending Grows Moderately

Despite the aggressive push on the capital front, overall government expenditure has risen at a more measured pace.
As of September 2025, 45.5% of the total Budget Estimate (BE) of ₹50.7 lakh crore had been utilised — slightly higher than 43.8% during the same period last year.

Economists suggest this indicates strong fiscal discipline, as the government continues to balance developmental spending with its fiscal consolidation roadmap.

The government’s fiscal deficit target for FY26 is pegged at 5.1% of GDP, with the Finance Ministry reiterating its commitment to reduce it below 4.5% by FY26-27.

Revenue Collection Lags Amid GST Rationalisation

On the revenue front, the data reflects a slight slowdown in tax collections. Net tax revenue stood at 43.3% of the FY26 target, compared with 49% in the first half of FY25.

The decline is partly attributed to the GST rationalisation measures implemented on September 22, which involved rate adjustments across select categories to simplify compliance and boost medium-term collections.

While the immediate impact has been a mild dip in GST revenue, the government expects higher consumption during the festive season and improved compliance efficiency to offset the shortfall in the coming months.

“The recent GST rationalisation was aimed at creating a more balanced structure rather than short-term revenue maximisation,” said a senior finance ministry official. “We expect tax inflows to normalise as festive demand and consumption rebound in the December quarter.”

Festive Demand and Digital Transactions Show Recovery Signs

Early indicators of consumer demand are showing positive trends. Two-wheeler sales surged 21.5% during the festive season compared with the previous year, suggesting a pickup in rural and semi-urban consumption.

Additionally, UPI and e-commerce transactions hit record levels during October, reflecting robust digital payment adoption and strong discretionary spending.

These trends provide optimism that private consumption, which contributes more than half of India’s GDP, may help sustain the momentum in the second half of FY26.

Analysts See Fiscal Position as Stable and Growth-Supportive

Economists view the fiscal data as broadly encouraging, noting that higher capex spending is a positive signal for medium-term growth even as near-term fiscal ratios fluctuate.

“A fiscal deficit at 36.5% of the annual target is within a comfortable zone for mid-year,” said an economist at a leading brokerage. “The government’s front-loading of capital expenditure is deliberate, ensuring that infrastructure projects get adequate momentum ahead of the monsoon and state elections.”

The strong capex deployment is also expected to crowd-in private investment, helping industrial and construction activity maintain momentum through FY26.

Fiscal Outlook: Growth with Prudence

The government’s focus on growth-oriented spending while maintaining a check on non-developmental expenditure underscores its intent to balance fiscal prudence with expansionary needs.

If tax buoyancy improves through GST stabilisation and higher consumption, the fiscal position may remain aligned with the FY26 deficit target of 5.1% of GDP.

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