India's April-May fiscal deficit at ₹13,163 crore—0.8% of annual target

Mint

18 hours ago

New Delhi: India's fiscal deficit staged a marked improvement in the first two months of 2025-26, helped by strong growth in non-tax revenue even as the government's capital expenditure spending increased.
The Union government reported fiscal deficit of ₹ 13,163 crore for April-May, amounting to 0.8% of the target for the whole of 2025-26, according to data released Monday by the Controller General of Accounts. For the same period last year, fiscal deficit was ₹ 50,615 crore.
India's cumulative fiscal deficit at 0.8% of the full-year target is the lowest level since the Centre began publishing monthly fiscal data in April 1997.
The government has maintained a strong commitment to fiscal consolidation, with the deficit for FY26 projected at ₹ 15.69 trillion, lower than the ₹ 16.85 trillion reported in FY25, and pegged at 4.4% 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.
The latest data appears to reflect front-loaded expenditure in early FY26, particularly a resurgence in capital spending, which had slowed during the first quarter of FY25 due to the national election.
In April-May FY26, capital outlay surged to ₹ 2.21 trillion, or 19.7% of the annual target, a marked increase from ₹ 1.44 trillion in the same period a year ago.
Overall expenditure rose to ₹ 7.46 trillion in the first two months of FY26, or 14.7% of the full-year target, compared to ₹ 6.23 trillion in the year-earlier period.
Revenue expenditure, including interest payments, subsidies, and salaries, stood at ₹ 5.25 trillion, or 13.3% of the full-year estimate, up from ₹ 4.80 trillion.
On the revenue side, net tax collections reached ₹ 3.51 trillion, accounting for 12.4% of the annual goal, while non-tax revenue jumped to ₹ 3.57 trillion, or 61.2% of the full-year estimate.
Combined, total revenue receipts climbed to ₹ 7.33 trillion, covering 21% of the FY26 target, up from ₹ 5.73 trillion in April-May FY25.
Fiscal deficit, or the shortfall between government spending and revenue, excluding borrowings, shows how much the government must borrow to meet its expenses.
While moderate 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.
While tax revenue growth lagged behind the pace projected in the Union Budget, strong gains in non-tax revenue and non-debt capital receipts more than offset the shortfall, they said.
'The revenue receipt growth in the first two months was 24.0%, more than double the growth in the FY26 budget (10.8%). This was due to strong growth of non-tax revenue, mainly due to RBI (Reserve Bank of India) dividend and non-debt creating capital receipts (asset monetization and disinvestment),' said Devendra Kumar Pant, chief economist at India Ratings and Research.
Pant said that while tax revenue growth has been slower than budgeted, collections in April and May touched 13.7% of the full-year target, the highest on record for this period, largely due to a low growth target for FY26, with most tax heads except Union customs and excise falling short of their budgeted pace.
He, however, warned that both domestic and global economic landscapes have changed since the beginning of FY26, with the Indian economy facing both tailwinds as well as headwinds.
'It is too early to conclude the achievability of FY26 fiscal deficit targets. While the slower tax collection growth is a concern, both non-tax collection and non-debt creating capital receipts have remained buoyant and may compensate for slippage in FY26 tax collection,' Pant added.
Other fiscal aggregates, however, show mixed trends compared to the same period in FY25, economists said, with growth in personal income tax collections moderating to 6.4% during April-May FY26, down from 17% for the full year in FY25.
'We expect that the fiscal performance of the GoI (government of India) in the first two months is quite transitory and the situation would progressively move towards the budgeted growth rates of different fiscal aggregates,' said D.K. Srivastava, chief policy advisor, EY India.
'Another noticeable positive trend is that the annual budgeted capital expenditure growth of 10.1% is being frontloaded with the growth in GoI's capital expenditure in the first two months being 54.1%,' he added.