India may achieve lower-than-expected fiscal deficit in FY26, capex growth seen slowing, says Antique

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• Centre's FY26 fiscal deficit may be 4.2 percent of GDP
• Capital spending growth expected to slow in final months
• Combined tax revenue growth to slow to 4% in final quarter

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India’s central government may achieve a lower-than-expected fiscal deficit for FY26 even as capital spending is likely to slow in the final months of the fiscal year, according to a report by Antique Stock Broking.

The brokerage expects the Centre’s fiscal deficit at 4.2 percent of GDP for FY26, lower than the revised estimate of 4.4 percent, while states are likely to meet their target of 3.2 percent of GDP. The combined fiscal deficit stood at 65.8 percent of the FY26 budget estimate during April-January, compared with 69.8 percent in the same period last year.

During the April-January period, combined tax revenue grew 7.9 percent year-on-year, with central and state tax revenues rising 10 percent and 6.4 percent, respectively. Combined revenue expenditure increased 5.7 percent, while capital expenditure rose 13.2 percent, supported by higher spending at both the Centre and state levels.

At the central level, gross tax revenue rose 8.6 percent, driven by strong growth in customs and corporate tax collections, while net tax revenue increased 10 percent due to slower growth in the states’ share. Revenue expenditure grew a modest 1.3 percent despite a 12.9 percent rise in interest expenses, while capital expenditure expanded about 11.2 percent, led by spending on communication and defence.

The Centre’s fiscal deficit reached 63 percent of the FY26 revised estimate during the period, compared with 74.1 percent a year earlier. For the remaining two months of the fiscal year, Antique expects a marginal shortfall in revenue receipts, particularly non-tax revenues, alongside a sharp pickup in revenue expenditure driven by higher grants to states and a contraction in capital expenditure.

State finances showed mixed trends, with tax revenue rising 6.4 percent year-on-year, supported by higher collections from stamp duties, registration fees and excise, while non-tax revenue declined 0.9 percent due to lower grants from the Centre. Revenue and capital expenditure grew 8.1 percent and 16.1 percent, respectively, with the fiscal deficit reaching 70.4 percent of the budget estimate, compared with 60.6 percent in the previous year.

For February and March, the brokerage expects state tax revenue to grow about 10 percent and non-tax revenue to rise sharply by 54 percent, while revenue and capital expenditure are likely to increase 9 percent and 18 percent, respectively, keeping the fiscal deficit in line with the budget estimate.

On a combined basis, tax revenue growth is expected to moderate to around 4 percent in the final two months of FY26, while capital expenditure growth may slow to about 6 percent, significantly lower than the pace seen in the first ten months. Revenue expenditure, however, is likely to grow 7.4 percent, reflecting higher spending by both the Centre and states.

The report said the moderation in capital spending and slower tax revenue growth could shape fiscal trends in the final quarter, even as overall deficit levels remain lower compared with last year.