India's fiscal deficit widens to Rs 5.98 trillion in April-August

India's fiscal deficit rose sharply in the first five months of the current financial year, driven by a surge in government capital expenditure and weaker tax collections, according to official data released on Tuesday.

The Union government reported a fiscal deficit of Rs 5.98 trillion for April–August 2025, amounting to 38.1% of the full-year target. This compares with Rs 4.35 trillion during the same period in 2024–25, data from the Controller General of Accounts (CGA) showed.

Despite the uptick, the Centre remains committed to fiscal consolidation. The deficit for FY26 is projected at Rs 15.69 trillion, or 4.4% of GDP, lower than the Rs 16.85 trillion recorded in FY25. Finance Minister Nirmala Sitharaman reiterated this glide path in her Union Budget speech earlier this year.

Tax revenues, however, have shown signs of stress. "There has been a third consecutive month of decline in tax collections, while capex growth at end-August was four times the budgeted tax growth," said Devendra Kumar Pant, Chief Economist, India Ratings.

By end-August, revenue receipts had reached 40.5% of the FY26 budget target, supported largely by robust RBI dividend transfers. Income tax collections fell 2.5% year-on-year, reflecting the impact of tax cuts announced in the budget, while corporate tax collections rose just 2.1%, well below the budgeted growth of 10.4%.

GST receipts also slowed, with central GST up 5.2% compared with a target of 11.3%. The government’s mid-August announcement on GST rationalization led many consumers to defer big-ticket purchases, further weighing on collections.

On the expenditure front, capital outlay grew by 43.4% year-on-year till August, bolstered by a 175% surge in loans and advances. Pant noted that while higher investment spending is supporting growth, weak revenues could compel the government to recalibrate spending later in the year to maintain its fiscal discipline.