India’s April-August fiscal deficit rises to ₹5.98 trillion, 38.1% of the annual target

New Delhi: India’s fiscal deficit rose in the first five months of 2025-26, as compared with the same period last year, due to higher government capital expenditure while net tax revenue declined.

The Union government reported a fiscal deficit of ₹5.98 trillion for April-August, amounting to 38.1% of the target for the entire 2025-26 fiscal year, according to data released by the Controller General of Accounts on Tuesday.

For the same period last year, the fiscal deficit was ₹4.35 trillion.

The government has maintained a strong commitment to fiscal consolidation, with the deficit for FY26 projected at ₹15.69 trillion, 4.4% of the GDP.

In FY25, the fiscal deficit was ₹15.77 trillion, 4.8% of GDP.

Finance minister Nirmala Sitharaman reiterated this target in her budget speech earlier this year, affirming the Centre’s glide path to reduce fiscal deficit to 4.4% of GDP by 2025-26.

Fiscal deficit, or the shortfall between government spending and revenue, excluding borrowings, shows how much the government must borrow to meet its expenses.

The widening gap reflects both a slower pace of revenue collections and higher front-loaded expenditure, said Madan Sabnavis, chief economist at Bank of Baroda.

“This should be understood against two factors responsible for the same. The first is that, on account of elections, the government spending was restricted in the first quarter of last year. Second, in the current year, the expenditure has been within the targets, but revenue has been slower,” he said.

“It does look like the overall fiscal deficit target will be retained as is, also borne out from the borrowings calendar for the second half of the year,” Sabnavis added.

Early capex push

The latest data appears to reflect front-loaded capital expenditure in early FY26, particularly a resurgence in spending, which had slowed during the first quarter of FY25 due to the national election.

In April-August FY26, capital expenditure surged to ₹4.32 trillion, or 38.5% of the annual target, a marked increase from ₹3.01 trillion in the same period a year ago.

Overall central government expenditure rose to ₹18.81 trillion in the first five months of FY26, or 37.1% of the full-year target, compared to ₹16.52 trillion in the year-earlier period.

Revenue expenditure, including interest payments, subsidies, and salaries, stood at ₹14.49 trillion, or 36.7% of the full-year estimate, up from ₹13.51 trillion a year ago.

On the revenue side, net tax collections increased from ₹8.74 trillion a year ago to ₹8.10 trillion, accounting for 28.6% of the annual goal.

To be sure, the Centre’s move to grant income tax rebates for those earning up to ₹12 lakh a year, announced in the latest Union Budget, has delivered a boost to household spending, but dented direct tax revenues.

Non-tax revenue jumped to ₹4.40 trillion, or 75.5% of the full-year estimate.

Combined, total revenue receipts climbed to ₹12.83 trillion, covering 36.7% of the FY26 target, up from ₹12.17 trillion in April-August FY25.

Balancing act

While moderate fiscal deficits can help sustain economic momentum, a sharp rise would raise concerns over inflationary pressures and rising public debt.

Policymakers, therefore, face the delicate task of balancing growth-supportive spending with fiscal restraint.

In July last year, Mint reported that the government was considering a shift in how it sets fiscal targets, moving from a fixed-point goal to a range of 3.7% to 4.3% beyond FY26 to provide greater flexibility in navigating economic uncertainties while maintaining long-term fiscal sustainability.

To be sure, the fiscal deficit target for 2025-26 stands at ₹15.69 trillion. Fiscal deficit in FY25 was ₹16.13 trillion.