The Government of India’s (GoI’s) fiscal deficit narrowed to Rs. 8.6 trillion during April-December or 9M FY2026 from Rs. 9.1 trillion in 9M FY2025, reaching 54.5% of the FY2026 budget estimate (BE). This stemmed from a lower revenue deficit compared to the year-ago levels, even as capital expenditure rose by a healthy ~15% year-on-year (YoY). On the taxes front, the GoI’s gross tax revenues (GTR) expanded by a robust ~32% YoY in December 2025, which pulled up the growth in 9M FY2026 to a healthy 8.5%. Nevertheless, we anticipate a sizeable shortfallin GTR in FY2026 relative to the BE, given the sharp ~23% YoY growth required in Q4 FY2026 to meet the budgeted target. Overall, ICRA expects the potential miss on the taxes side to be offset by higher-than-budgeted non-tax revenues and sizeable expenditure savings on the revenue spending front. As a result, we do not expect a fiscal slippage in the FY2026 revised estimate (RE) relative to the BE of 4.4% of GDP. Thereafter, the GoI’s fiscal deficit is expected to be pegged at 4.3% of GDP in FY2027.

GoI’s GTR to trail FY2026 BE: GTR rose by 8.5% YoY in 9M FY2026, amid a healthy growth in indirect (+12.9%) and direct (+8.0%) tax collections. The former was aided by the uptick in GST inflows (+13.4%; IGST inflows surged in Dec 2025 vs. outflows in year-ago period), customs (+15.0%; sharp uptick in Dec 2025) and excise (+9.9%) duties.

Capex expanded by ~15% YoY in 9M FY2026: TheGoI’s capex contracted for the third consecutive month in December 2025 (-24.5% YoY), marking a decline of 23% in Q3 FY2026, which is likely to weigh on the GDP growth in the quarter. Nevertheless, capex rose by 15% to Rs. 7.9 trillion in 9M FY2026, implying that a ~9% YoY contraction is required during Q4 FY2026 to ensure that capex prints in line with FY2026 BE.