New Delhi: India’s fiscal deficit for April-December 2025 stood at ₹8.6 trillion, or 54.5% of the budget estimate for the year ending March, helped by strong growth in tax and non-tax revenues, data from the Controller General of Accounts (CGA) showed on Friday.
Fiscal deficit at the end of December shows a moderation from the ₹9.7 trillion, or 62.3% of the budget estimate, at the end of November. Usually, tax revenues pick up close to the end of the financial year, although expenditure gets front-loaded at the beginning of the year, showing a higher fiscal deficit in initial months.
In the nine month of FY26, net tax revenues grew by a modest 5.2%, non-tax revenues expanded by 20.6% and revenue expenditure rose by a tepid 1.8%, whereas capital expenditure (capex) surged by 15%.
The government’s gross tax revenues rose by a resounding 32% in December 2025, pulling up the year to date growth to 9% during April-December of the ongoing fiscal year.
Monthly capex over the comparable year-ago period contracted for the third consecutive month in December 2025, marking a decline of 23% in Q3 FY2026, which may impact the GDP growth in the quarter.
Despite this, capex recorded a healthy rise of 15% year-on-year during April-December of FY26, amounting to 70% of the FY26 budget estimate as against 65% in the year-ago period.
The government has earmarked ₹11.21 trillion in capital expenditure for asset creation in FY26.
“As per CGA data for the period from April-December 2025, the growth of gross tax revenues is 8.5%, which shows a sharp increase from the corresponding growth of 3.3% during April to November 2025. This sudden pick-up implies that the fiscal deficit target of 4.4% for FY26 is achievable without requiring any substantial cuts in revenue expenditure. This would also be helped by the fact that non-tax revenues already show an achievement of 92.6% of the budget estimates,” said D.K. Srivastava, chief policy advisor, EY India. “Capital expenditure growth has come down to 15% in the April-December 2025 period, which is closer to the budgeted annual growth of 10.1% over FY25 (revised estimates). Thus, the critical parameters such as the fiscal deficit target and the ratio of revenue deficit to fiscal deficit for FY26 are likely to be realized as per the budget estimates, with the main shortfall coming from the low nominal GDP growth of 8.0% as compared to the budgeted growth of 10.1%.”
A better-than-expected non-tax revenue collection of ₹5.40 trillion, or 92.6% of the full-year budget estimate, was achieved in the first nine months of FY26, cushioning the central government’s finances. This was higher than 82% of the budgeted non-tax revenue collected in the year-ago period.
The Centre’s fiscal position is supported by better-than-expected dividend payouts by public sector undertakings, state-run banks, and the Reserve Bank of India. The total dividend received by the Centre during the period was ₹3.50 trillion, or 108% of the budget estimate of ₹3.25 trillion.
Experts suggest that despite modest growth in tax revenue up to December, the government could be heading towards making savings on revenue expenditure, as its non-interest non-subsidy expenditure has declined by 4.7% during the nine months through December 2025. Expenditure under this head needs to expand by a substantial 38% during the ongoing fourth quarter (January-March) to meet the budget estimates for FY26.
“This appears unlikely and could lead to sizeable savings, which would offset the shortfall on the receipts side. A ₹1.5 trillion cut in expenditure on this account would still imply a required growth of 15% during the last three months, which seems relatively reasonable,” said Aditi Nayar, chief economist, Icra Ltd.
“Overall, we expect 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 anticipate the FY2026 RE (revised estimates) to indicate a higher fiscal deficit than the FY2026 BE (budget estimates),” she said.
The expectation that fiscal deficit may be contained at budgeted levels of 4.4% of GDP during FY26 with revenue momentum and savings on expenditure, also works well with the government’s plan for a calibrated shift of policies around debt sustainability, instead of annual deficit targets in the upcoming Union budget.
“With debt-to-GDP emerging as the fiscal anchor, only mild consolidation should be required ahead, assuming nominal growth remains stable, which allows policy space to focus on efficiency and productivity-enhancing reforms rather than aggressive expenditure compression,” said Madhavi Arora, chief economist at Emkay Global Financial Services.
Arora said that the constraints on fiscal headroom mean the emphasis will move beyond headline capital expenditure numbers towards improving the quality and productivity of spending.
“Capex growth is expected to remain modest, led largely by defence and roads, but the real policy thrust is likely to be on deregulation, factor productivity and sector-specific ease of doing business, which are critical for raising export competitiveness and moving India up the value chain,” she said.
“Icra expects the GoI’s (government of India) fiscal deficit to be pegged at 4.3% of GDP in FY27, which would entail a net market borrowing number of ₹12.2 trillion, somewhat higher than the FY26 levels. This, along with a substantial increase in redemptions, is set to push up the gross market borrowing number quite sharply to ₹16.9 trillion in FY27 from ₹14.6 trillion in FY26. However, the GoI could pare the gross issuance number by either drawing down cash balances directly or using these to conduct buybacks, resorting to net Treasury-bill issuances, or conducting switches/conversions to reduce the redemption pressure in the next fiscal,” Nayar said.