Fiscal deficit widens at 38.1% of FY26 target during first five months

Fiscal deficit for August

The fiscal deficit for the first five months of the fiscal came in higher at Rs 5.98 lakh crore, or 38.1 percent of the full-year target, compared to 27 percent during the same period a year ago, according to data released on September 30.

The widening of the fiscal deficit is owing to a sharp rise in capital spending and a decline in revenue. Government's capital spending rose to Rs 4.32 lakh crore or 38.5 percent of the full-year target during the period, compared with 27.1 percent the previous year.

On the other hand, tax revenue were lower at Rs 8.1 lakh crore, which was 28.6 percent of the full-year target (Rs 28.37 lakh crore). Last fiscal, as of August, the government had collected 33.8 percent of FY25 revenue target. The revenue slowdown partly reflects the income tax cut announced in the Union Budget 2025, which has reduced Centre's direct tax collections.

The Rs 2.7 lakh crore dividend transfer from the Reserve Bank of India helped cushion some of this shortfall, but the Asian Development Bank is expecting a slippage in this year's fiscal deficit. The ADB in its outlook released on September 30 said the government may not be able to meet the deficit target of 4.4 percent, but may be able to better its last year’s figure of 4.7 percent.

“...Tax revenue growth may be lower than expected, partly because GST cuts were not included in the original budget while spending levels are assumed to be maintained, pushing up the deficit. Nevertheless, the deficit will likely be lower than the 4.7 percent of GDP recorded in FY2025,” ADB said.

The non-corporate tax collection was down 7.3 percent at Rs 96,784 as of September 17, according to data released by the government.