Centre's fiscal deficit in H1 stood at 36.5% of full-year target

In H1 of FY26, capex grew at a robust 40 per cent, exhausting more than half (51.8 per cent) of the Rs 11.2 trillion full year target against 37.3 per cent spending during the same period a year ago

The Centre’s fiscal deficit for the first half (H1) of the current financial year (April–September 2025-26/FY26) stood at 36.5 per cent of the full-year target, despite muted growth in tax revenues and a sharp uptick in devolution to states.

 

During the same period last year, the fiscal deficit was 29.4 per cent of the full-year target, owing to a general election–led slowdown in capital expenditure (capex), data released by the Controller General of Accounts showed.

 

In H1FY26, capex grew at a robust 40 per cent, exhausting more than half (51.8 per cent) of the ₹11.2 trillion full-year target, compared with 37.3 per cent spent during the same period a year ago.

 

Revenue expenditure, however, stood at 43.7 per cent of the FY26 target, compared with 45.7 per cent during the same period in the preceding year.

 

With two tranches of central tax devolution shared with the states in October, a total of ₹8.3 trillion has already been disbursed — 15.5 per cent higher than the ₹7.2 trillion released during the same period last year.

 

Gross tax revenue rose by a muted 2.8 per cent during H1FY26, with a 4.7 per cent rise in income-tax collections and a subdued 1.1 per cent growth in corporate tax collections. The increase in indirect tax collections was modest at 3.2 per cent, with a 5.2 per cent contraction in Customs duties and a 4.8 per cent growth in goods and services tax and excise duty collections.

 

Net tax revenue during H1FY26 contracted 2.8 per cent, with collections reaching 43.3 per cent of the full-year target, compared with 49 per cent during the same period a year ago.

 

However, a 30.5 per cent surge in non-tax revenues — buoyed up by a record ₹2.7 trillion dividend from the Reserve Bank of India — offset the dip in net tax revenue. Total revenue receipts grew 4.5 per cent, covering 49.6 per cent of the full-year target, still lower than the 51.8 per cent achieved in the same period last year.

 

Chief Economic Advisor V Anantha Nageswaran, speaking at the Business Standard BFSI Insight Summit in Mumbai, said that despite low nominal gross domestic product (GDP) growth, the government remains on track to meet its fiscal deficit target of 4.4 per cent of GDP in FY26.

 

Aditi Nayar, chief economist at Icra, said that with an asking growth rate of over 21 per cent in the second half of FY26 to meet the full-year tax revenue target, taxes are likely to undershoot Budget Estimates. “As of now, we expect the typical trend of expenditure savings and higher-than-budgeted non-tax revenues to absorb any shortfall in tax revenues, and do not foresee a material slippage relative to the Government of India’s FY26 fiscal deficit target of 4.4 per cent of GDP,” she added.