The reduced fiscal deficit target for FY26 was premised on strong tax collections, even as the government maintains its strong capital expenditure push to stimulate consumption and job creation.
“The reduced fiscal deficit target for FY26 was premised on strong tax collections, while the government continues its robust capex push–essential for stimulating consumption and creating jobs. However, achieving the full-year FY26 fiscal math appears challenging amid subdued growth in corporate and income tax revenues,” the report added.
In April-September FY26, India’s fiscal deficit reached Rs. 5.73 lakh crore (37 per cent of Budgetary Estimate), a 21 per cent year-on year increase from Rs. 4.75 lakh crore (30 per cent of RE) in the same period last year. The rise was primarily driven by higher capital expenditure in the first half of FY26, which outpaced revenue growth.
Total expenditure grew 9 per cent year-on-year, while receipts rose by a modest 5.7 per cent. The government remains committed to reducing the fiscal deficit to 4.4 per cent of GDP in FY26, down from 4.8 per cent in FY25.
However, weaker growth in direct tax receipts could make meeting fiscal goals difficult, the report added.Fiscal targets are specific, measurable goals set by a government for its budget, such as achieving a certain level for the fiscal deficit (the gap between government spending and revenue) or debt-to-GDP ratio.The report noted that the estimated Rs 24,000 crore impact from GST reforms in the second half of FY26 may be absorbed through the GST compensation cess fund.
The report added that strong GST collections in September–significantly higher than in August–indicate that the effect of GST rate cuts on overall fiscal arithmetic may remain contained.
GST collections rose 9 per cent year-on-year in the month of September to Rs.0.76 lakh crore, yet growth remained subdued at 5.8 per cent for H1FY26 (Rs.4.67 lakh crore).
“Looking ahead, revenues may face a further setback due to reduction in GST rates,” the report added.
Additional support comes from higher-than-budgeted non-tax revenues and better-than-expected divestment proceeds, offering some cushion to the government’s fiscal position.
Non-tax revenues jumped 30.5 per cent year-on-year to Rs 4.66 lakh crore (80 per cent of BE) in H1FY26, up from Rs.3.57 lakh crore in H1FY25, driven largely by a robust RBI dividend of Rs 2.6 lakh crore this fiscal, exceeding the budgeted Rs 2.1 lakh crore.
