India fiscal deficit FY26: April-May narrows to 0.8%

Fiscal math in focus as FY26 begins

India’s fiscal deficit numbers have drawn attention early in FY2025-26, with government data and multiple reports pointing to sharp month-to-month swings driven by receipts timing and front-loaded spending. Data cited by Reuters said India’s fiscal deficit in April-May was ₹1.62 trillion, or 9.6% of the full-year estimate for the financial year ending March 31. Separate CGA data for FY26 showed a markedly lower deficit for the first two months, helped by a surge in non-tax revenue.

The contrast matters because the fiscal deficit is a key input for bond markets, government borrowing plans, and investor expectations on interest rates and liquidity. It also helps track how quickly expenditure is moving compared with revenues, especially at the start of a new fiscal year when tax flows can be uneven.

April’s jump: weaker receipts and higher spending

One report described a sharp widening in April, stating that India’s fiscal deficit surged to ₹3.62 trillion in the month, nearly doubling from a year earlier. The deterioration was linked to a steep fall in receipts and an increase in expenditure in the first month of the fiscal year.

Receipts, excluding borrowings, were reported to have declined 23.8% year-on-year to ₹2.13 trillion in April from ₹2.79 trillion a year earlier. Revenue receipts fell to ₹2.03 trillion from ₹2.57 trillion, while net tax revenue declined to ₹1.78 trillion from ₹1.90 trillion. Non-tax revenue was reported to have fallen to ₹0.24 trillion from ₹0.67 trillion in April 2025, according to CGA data cited in the same report.

The April picture was framed as a combination of weaker inflows and front-loaded expenditure, a pattern that can reverse later in the year depending on tax performance and one-off receipts.

Excise duty cut and revenue implications

The same report linked the receipts decline to a policy decision taken in March to cut excise duty on petrol and diesel by ₹10 per litre each. The move was aimed at shielding consumers from elevated global crude prices tied to conflict in West Asia.

The excise cut was reported to have resulted in a revenue loss of nearly ₹14,000 crore, which equals about ₹0.14 trillion. While fuel tax changes can feed through to inflation and consumption, they can also compress near-term tax collections, particularly in the opening months when the base is still stabilising.

April-May FY26: CGA shows a sharp improvement

CGA data released Monday showed the Union government reported a fiscal deficit of ₹13,163 crore in April-May, which equals ₹0.13 trillion. This was described as 0.8% of the full-year target for 2025-26 and the lowest in nearly three decades, with another note in the provided material stating it was the lowest level since 1997.

In the same CGA release cited in the text, revenue expenditure (including interest payments, subsidies, and salaries) stood at ₹5.25 trillion, or 13.3% of the full-year estimate, up from ₹4.80 trillion. On the revenue side, net tax collections reached ₹3.51 trillion, accounting for 12.4% of the annual goal. Non-tax revenue jumped to ₹3.57 trillion, or 61.2% of the full-year estimate.

Total revenue receipts climbed to ₹7.33 trillion in April-May, covering 21% of the FY26 target, up from ₹5.73 trillion in April-May FY25. The data and the commentary in the provided text attributed the early improvement to strong non-tax revenue and non-debt capital receipts.

What drove the non-tax revenue surge

The provided material linked the strength in non-tax revenue mainly to the Reserve Bank of India dividend and non-debt creating capital receipts such as asset monetisation and disinvestment. Devendra Kumar Pant, chief economist at India Ratings and Research, was cited saying revenue receipt growth in the first two months was 24.0%, more than double the growth assumed in the FY26 budget (10.8%).

The same commentary noted that tax revenue growth lagged the pace projected in the Union Budget, but the non-tax and non-debt capital flows more than offset the shortfall in the opening months.

Mid-year snapshots: deficit ratios and receipts trends

Beyond the first two months, CGA data points cited in the provided text show the deficit rising as the year progresses and spending gathers pace. India’s fiscal deficit from April to November stood at ₹9.76 trillion, or 62.3% of the budget estimate for 2025-26, according to CGA. A related line in the material said the deficit widened to ₹9.77 trillion in April-November 2025-26 from ₹8.47 trillion a year earlier, reaching 62.3% of the full-year target versus 52.5% in the same period last year.

Receipts were also described as improving over that longer window. Total receipts rose 2.9% year-on-year to ₹19.49 trillion (55.7% of the annual target), while net tax revenues were ₹13.94 trillion versus ₹14.40 trillion a year ago. Separately, for April-October FY26, net tax collections were reported at ₹12.74 trillion, down from over ₹13.04 trillion in the same period of the previous year.

Capex push and the deficit equation

Capital spending was repeatedly highlighted as a key factor influencing the fiscal balance. For April-October FY26, capital expenditure was reported to have surged to over ₹6.17 trillion, up from ₹4.66 trillion in the previous year. In the same April-October context, the fiscal deficit was reported at ₹8.30 trillion, or 53% of budget estimates.

Another data point in the material said India’s fiscal deficit for April-August stood at ₹5.98 trillion, accounting for 38.1% of the full-year target, compared with ₹4.35 trillion in the same period last year. The uptick was linked to muted growth in revenue receipts, a contraction in net tax revenues, and higher total expenditure, including a spike in capex.

Key figures at a glance

Market impact: why these numbers matter

The mix of low early-year deficit (April-May) and higher mid-year deficit ratios (such as 62.3% by April-November) underscores how sensitive the headline number is to the timing of receipts and spending. Strong non-tax revenue, including RBI dividend-related inflows cited in the material, can temporarily lower the deficit even when revenue expenditure is rising.

At the same time, capex acceleration changes the composition of spending and can widen the deficit in the near term, especially when net tax collections are softer. The data points cited show net tax receipts declining in several windows, including ₹13.94 trillion in April-November versus ₹14.40 trillion a year ago, and ₹12.74 trillion in April-October versus over ₹13.04 trillion previously.

Analysis: signals for FY26 fiscal execution

Two themes stand out from the provided data. First, the government’s reliance on non-tax revenue and non-debt capital receipts can meaningfully shape early-year deficit outcomes, as seen in the April-May FY26 number of ₹0.13 trillion (0.8% of target). Second, the capex push is substantial, with April-October capex cited at ₹6.17 trillion, up from ₹4.66 trillion, which can lift the deficit ratio as the year progresses.

The material also points to policy choices influencing tax flows. It cites analysts attributing net tax softness to direct tax rate cuts announced in the budget and a reduction in GST rates in September. It also references income tax rebates for those earning up to ₹12 lakh in a separate context where net tax collections were reported lower year-on-year.

Conclusion

India’s FY26 fiscal deficit trajectory, as reflected in the provided data points, shows a strong start in April-May on the back of a sharp rise in non-tax revenue, alongside evidence of weaker net tax collections and higher capital spending later in the year. Investors will watch subsequent CGA releases for how receipts normalise and whether capex stays elevated while revenue spending remains within budgeted limits.