The Government of India’s (GoI’s) fiscal deficit widened to Rs. 5.7 trillion in April-September or H1 FY2026 (36.5% of FY2026 Budget Estimates; BE) from Rs. 4.7 trillion in H1 FY2025, reflecting a surge in its capital expenditure, even as the revenue deficit was curtailed at just Rs. 0.3 trillion, owing to a muted rise in revenue spending. The GoI’s gross tax revenues (GTR) rose by a lacklustre 2.8% YoY in H1 FY2026, amid weak growth in direct as well as indirect taxes. To meet the FY2026 target, GTR is required to grow by a sharp ~21% YoY in H2, with a steep growth needed in personal income taxes (PIT; +24%), corporation taxes (CT; +17%), and CGST (+16%) collections, which seems quite ambitious and a shortfall on this account relative to the FY2026 BE seems highly likely. Nevertheless, ICRA currently believes that the typical trend of expenditure savings and higher-than-budgeted non-tax revenues is likely to absorb the shortfall on the taxes front. Consequently, we do not foresee a material slippage vis-à-vis the GoI’s FY2026 fiscal deficit target of 4.4% of GDP. 

•  GTR to trail FY2026 BE by Rs. 0.7-1.0 trillion, amid weak H1 trends: GTR expanded by just 3% YoY in H1 FY2026, amid a tepid growth in PIT, corporation taxes, and a decline in customs duty collections.
•  Capex surged by 40% YoY in H1 FY2026 vs. 2% growth in revex: In H1 FY2026, the GoI’s capex jumped by ~40% YoY, even as the growth in revex remained muted at 1.5%.

EXHIBIT: Fiscal trends in April-September or H1 FY2025 and H1 FY2026

Source: CGA, Ministry of Finance, GoI; ICRA Research