The Government of India’s (GoI’s) fiscal deficit eased to Rs. 9.8 trillion in April-January or 10M FY2026 from Rs. 11.7 trillion in 10M FY2025, reaching 63% of the FY2026 Revised Estimate (RE). This followed from a dip in the revenue deficit, even as capex expanded by ~11% year-on-year (YoY) in 10M FY2026. The GoI’s gross tax revenues (GTR) rose by 8.6% YoY in 10M FY2026, amid a double-digit expansion in corporate and indirect tax collections. Based on the FY2026 RE, GTR needs to rise by a tepid 2.9% YoY during February-March 2026 to meet the target, which appears likely to be achieved. While we do not expect a fiscal slippage in FY2026, the fiscal deficit-to-GDP ratio may print at ~4.5% as against the RE of 4.4%, given the downward revision in the nominal GDP estimate for FY2026 compared to that assumed in the Union Budget. Thereafter, we estimate the budgeted fiscal deficitto print at 4.46% of GDP in FY2027 vs. the target of 4.3% of GDP. On the borrowings front, the GoI conducted switches of G-secs maturing in FY2027 worth Rs. 0.9 trillion in February 2026, and another Rs. 0.25 trillion are due in early-March 2026, which would reduce the budgeted redemptions for FY2027, implying a sizeable reduction in gross market borrowings to ~Rs. 16 trillion (from Rs. 17.2 trillion), offering some respite to G-sec yields.

• Corporate tax and indirect tax collections boosted YoY expansion in GTR in 10M FY2026: The GoI’s GTR rose by a healthy 8.6% YoY in 10M FY2026, amid a double-digit expansion in corporate tax (+14.7%) and indirect tax (+11.7%) collections. It needs to rise by a tepid 2.9% YoY during February-March FY2026 to meet the FY2026 RE of Rs. 40.8 trillion, which appears likely to be achieved. The implicit growth required for personal income (+7.8%, albeit on a low base) and corporate (+4.9% on a high base) taxes in February-March 2026 to meet the respective revised targets appear plausible.
• Capex rose by ~11% YoY, while revex was up 1.3% in 10M FY2026: The YoY rise in capex stemmed from Defence, Ministry of Railways, and Department of Food and Public Distribution; the latter reflects the ways means and advance (WMA) loans provided to the Food Corporation of India (FCI) by GoI, which are to be reversed by March 2026, and would provide space for other capex to be incurred in that period. Additionally, non-interest non-subsidy revex needs to expand by ~32% in February-March FY2026 to meet the RE, which appears unlikely and may lead to some expenditure savings.

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