The Centre is expected to meet its fiscal deficit target of 4.4% of GDP for FY26, but analysts have raised concerns over slowing tax collections following cuts in income tax and the GST.
According to the latest data from the Controller General of Accounts, India's fiscal deficit stood at Rs 5.98 lakh crore between April and August 2025, representing 38.1% of the full-year target. This is higher than the Rs 4.35 lakh crore (27% of Budget Estimate) recorded in the same period last fiscal year.
Slower Tax Collections Worry Analysts
Net tax revenue for the first five months of FY26 reached Rs 8.1 lakh crore, accounting for 28.6% of the Budget Estimate, while total revenue receipts stood at 36.6% of the full-year target. Total receipts amounted to Rs 12.82 lakh crore, and total expenditure was slightly higher at Rs 18.8 lakh crore (37.1% of BE).
Analysts have expressed concerns over the lower net income tax collections, noting that GST rate cuts could further impact revenues. Net income tax collections from April to August were Rs 4.4 lakh crore, 2.5% lower than Rs 4.52 lakh crore a year ago.
"Even as income tax collection growth is expected to improve between September and March, we anticipate a shortfall of around Rs 2 lakh crore, which will only be partially offset by corporate tax outperformance of about Rs 30,000 crore," a report said.
Fiscal Deficit Trajectory Remains Tight
Reports suggest that the fiscal deficit trajectory is "treading on thin ice." Revenue foregone due to GST rate rationalisation and slowing nominal GDP growth are key concerns. However, analysts remain cautiously optimistic that the government can still meet its fiscal deficit target.
The Chief Economist at India Ratings & Research highlighted that fiscal policy measures, including income tax cuts and GST rationalisation, aim to boost consumption, while higher loans and advances are intended to support investment demand. Early data on car sales during the festive season indicate a potential rise in consumption, which may offset some revenue losses from GST cuts.
Central GST collection until August 2025 grew 5.2%, falling short of the budgeted 11.3% growth, the economist noted.
Borrowing Plans Remain Steady
According to the Chief Economist at Bank of Baroda, the higher fiscal deficit between April and August 2025 compared to last year can be attributed to restricted government spending during elections in the previous year and slower revenue growth this year.
The government plans to borrow Rs 6.77 lakh crore in the second half of FY26, slightly reduced by Rs 10,000 crore, keeping total borrowing at Rs 14.72 lakh crore, in line with the Budget Estimate.
While fiscal pressures remain, analysts believe that careful expenditure management and borrowing plans should allow the Centre to maintain the 4.4% fiscal deficit target for FY26.
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