The Government of India’s (GoI’s) fiscal deficit rose to Rs. 8.3 trillion during April-October or 7M FY2026 from Rs. 7.5 trillion in 7M FY2025, reaching ~53% of the budget estimate (BE) of Rs. 15.7 trillion. This stemmed from a strong 32% expansion in its capital expenditure, even as the revenue deficit narrowed on a year-on-year (YoY) basis. On the taxes front, the growth in gross tax revenues (GTR) was subdued at 4% in 7M FY2026, reflecting a modest rise in both direct and indirect taxes. Given the steep required growth of ~22% in November-March FY2026, GTR is expected to undershoot the BE by ~Rs. 1.2-1.5 trillion. However, this would be offset by an upside of ~Rs. 0.5 trillion on non-tax revenues and expenditure savings of Ministries garnered typically in a fiscal, even as additional allocation may be announced on some accounts, including fertiliser subsidy. At present, ICRA does not expect a material fiscal slippage over the budgeted 4.4% of GDP.

• GTR to undershoot target by Rs. 1.2-1.5 trillion in FY2026: GTR rose by a tepid 4.0% YoY in 7M FY2026, amid a 6.1% growth in direct tax collections. Besides, the rise in indirect tax collections was quite weak at just 2.6% in 7M FY2026, owing to a 2.5% contraction in customs duties and a 6-8% growth in Central GST (CGST) and excise duty collections. Meeting the FY2026 BE requires a steep YoY expansion of 22% in gross tax revenues in November-March FY2026. Given this, ICRA is apprehensive that gross tax revenues will undershoot the budgeted target of Rs. 42.7 trillion by ~Rs. 1.2-1.5 trillion, amid a likely sizeable miss in income tax and CGST collections.
• Capex increased by ~32% YoY, while revex was at par with year ago levels in 7M FY2026: The YoY expansion in GoI’s capex stemmed from Department of Food and Public Administration (DFPD) that reflects the ways means and advance (WMA) loans temporarily provided to the Food Corporation of India (FCI) by the GoI. Besides, the capital outlay on defence services and capex by MoRTH expanded by ~68% and ~21% YoY, respectively, in 7M FY2026. Aggregate capex will have to contract by ~14% in November-March FY2026 to remain within the target of FY2026 (Rs. 11.2 trillion). However, the required 28% growth in non-interest non-subsidy revex in remainder of the fiscal is unlikely to materialise and could lead to savings, a portion of which could be reallocated to capex instead.