Centre Keeps Fiscal Deficit In Check Despite 54% Surge In Capital Spending

The central government’s fiscal deficit remained relatively low at ₹13,000 crore in the first two months of the current fiscal year, despite a significant 54% jump in capital expenditure.

According to data released by the Controller General of Accounts (CGA), the Centre received ₹7.32 lakh crore in the first two months of FY26, which is 21% of the Budget Estimate (BE). This includes ₹3.5 lakh crore of net tax collection and ₹3.56 lakh crore of non-tax revenues.

The data shows that tax revenues rose 10% year-on-year, while non-tax revenues surged 41.8% during the same period.

Additionally, ₹1.63 lakh crore was transferred to state governments as devolution of share of taxes, which is ₹23,720 crore higher than the previous year.

FY26 fiscal deficit target

Despite the significant increase in capital expenditure, the fiscal deficit remained low due to the support from the Reserve Bank of India’s (RBI) surplus transfer.

However, experts caution that it is too early to conclude on achieving the FY26 fiscal deficit target.

The government has set a fiscal deficit target of 5.9% of the GDP for the current financial year.

The Centre’s ability to maintain a low fiscal deficit while increasing capital expenditure will be crucial in achieving this target.

India’s government spent ₹7.46 lakh crore from April to May, accounting for 15% of the Budget Estimate (BE).

This expenditure included ₹5.24 lakh crore on revenue account and ₹2.21 lakh crore on capital expenditure.

Capital expenditure saw a significant 54% surge during this period, but Aditi Nayar, Chief Economist of ICRA, notes that this growth is based on a low base. Compared to April-May 2023, the growth is actually around 32%.

Nevertheless, capital expenditure already accounts for 20% of the FY26 BE, and even if it contracts by 1% in the remaining 10 months, the government will still meet its target.

Nayar suggests that the government could further increase capital spending by ₹0.8 lakh crore beyond the Budget target, potentially pushing total capital expenditure to ₹12 lakh crore and achieving a 14.2% annual growth.

The Chief Economist at India Ratings & Research (Ind-Ra), Devendra Kumar Pant, said that since the beginning of FY26, both the domestic and global economic landscape has changed.

Adding more, he said, “The slower tax collection growth is a concern, both non-tax collection and non-debt creating capital receipts have remained buoyant and may compensate for slippage in FY26 tax collection.”

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