Centre on track to meet fiscal deficit target of 4.4% in FY26

The Centre remains confident of managing its books and meeting its fiscal deficit target of 4.4% of the GDP despite concerns of a likely shortfall in tax revenue and slower nominal GDP growth.

According to sources, potential savings in revenue expenditure as well as higher-than-anticipated non-tax revenues could help meet any shortfalls and keep the fiscal math in check. “There are still four months to go. The fiscal deficit target will be met,” said a person in the know.

The Centre’s fiscal deficit between April and October was Rs 8.25 lakh crore or 52.6% of the Budget estimate. Sources pointed out that this is on track, without a very significant variation in trend from past years.

For FY27, the Centre could keep a fiscal deficit target of around 4-4.2% of the GDP, but as Finance Minister Nirmala Sitharaman had said in the Union Budget FY26, the focus would be on bringing down the Central government debt as a percentage of GDP. A decision on this is likely to be taken closer to the Union Budget 2026-27.

Between April and October 2025, the Centre’s net tax revenue amounted to Rs 12.74 lakh crore or 44.9% of the full year target. Collections of both direct taxes as well as goods and services tax are seen to slow down due to the tax giveaways, and there have been questions whether they would meet the respective targets.

Sources are also confident that the Centre will be able to meet its capital expenditure target of Rs 11.21 lakh crore for the fiscal year, noting that there are enough projects in the pipeline for funds to be disbursed. This is also essential for sustaining the economic growth momentum, given that the recovery in private sector capex is yet to become broad-based. In the first seven months of the current fiscal year, the Centre has used 55.1% of the Budget estimate, amounting to Rs 6.17 lakh crore of capital expenditure.

As per projections by PwC India, the growth in corporation tax in FY26 is likely to be 10.4% in FY26 as against a Budget Estimate of 10.8% while income tax revenue is seen to grow 13.2% this fiscal, as against the estimate of 14.4%. GST excluding compensation cess is estimated to grow by 9.9% versus the budgeted growth rate of 10.2%. It expects fiscal deficit to be in the range of 4.2% to 4.4% in FY26.