Fiscal deficit surges by ₹1.51 Trillion in November 2025

29 Jan 2026 , 12:11 PM

FISCAL DEFICIT STORY FOR FY26 – WHY IT MATTERS?

One of the most important metrics for any economy is the fiscal deficit. What do we understand by fiscal deficit? It is also called budget deficit, which is the extent to which the revenue inflows are insufficient to meet the revenue and capital outflows. The gap is called the fiscal deficit and it has to be funded. That is where the idea of fiscal deficit becomes important. Since it is the budgetary gap, the fiscal deficit has to be funded by borrowing and is also a proxy for the borrowings of the economy. But, why is it significant?

Fiscal deficit is not looked at in isolation, but as a percentage of the GDP. Quite often, economies allow the fiscal deficit to grow when the government has to spend to boost growth in the economy. We saw than in the aftermath of the COVID pandemic when the government allowed the fiscal deficit to go above 9% of GDP to boost growth. However, since then, the fiscal deficit has been gradually brought down and for FY26, the fiscal deficit is targeted at 4.4% of GDP. A very high ratio of fiscal deficit to GDP tends to weaken the rupee and is also viewed negatively by foreign portfolio investors (FPIs) and global rating agencies (like S&P, Moody’s, Fitch).

NOVEMBER 2025 UPDATE ON FY26 FISCAL DEFICIT

Each month-end, the Controller General of Accounts (CGA) puts out an updated fiscal deficit report for the year-to-date (YTD). For instance, on the last working day of December, the CGA reports fiscal deficit as of the end of November 2025, which is for the first 8 months of FY26. This cycle goes on each month-end. The CGA data not only provides the total fiscal deficit, but also how the fiscal deficit was arrived at; and its key components.

In addition, the report also provides a picture of the revenue deficit, which is the shortfall of revenue inflows to meet revenue outflows. That is popularly referred to as borrowing for morning breakfast. For FY26, the fiscal deficit target is ₹15.69 Trillion and the fiscal deficit has touched ₹9.77 Trillion as of the close of November 2025; or 62.3% of the full year fiscal deficit. Let us now turn to the break-up of fiscal deficit numbers and how it is arrived at.

BREAK-UP OF FISCAL DEFICIT – FY26 TARGETS AND 8-MONTHS ACTUALS

Here are government receipts, expenditures, and fiscal deficit for the 8 months of FY26. The table also captures the target achieved as of November 2025.

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actual (Apr-Nov) (₹ in Crore) #	Actual to Target (% achieved)
Revenue Receipts	34,20,409	19,10,312	55.9%
Tax Revenue (Net)	28,37,409	13,93,946	49.1%
Non-Tax Revenue	5,83,000	5,16,366	88.6%
Non-Debt Capital Receipts	76,000	38,927	30.7%
Total Receipts	34,96,409	19,49,239	55.7%
Revenue Expenditure	39,44,255	22,67,700	57.5%
Capital Expenditure	11,21,090	6,58,210	58.7%
Total Expenditure	50,65,345	29,25,910	57.8%
Fiscal Deficit	15,68,936	9,76,671	62.3%
Revenue Deficit	5,23,846	3,57,388	68.2%
Primary Deficit	2,92,598	2,30,906	78.9%

Data Source: Controller General of Accounts (# – 8 months data)

Here are key takeaways from the updated fiscal deficit story for FY26.

• This year, the revenue flows have been going slow compared to the full year targets. This shortfall is more pronounced in the case of net tax revenues, which is just 49.1% of full-year targets as of end November 2025. What is significant is that bulk of the high value income tax refunds are yet to be paid out this year. This raises the prospects of the net tax revenues falling well short of the full year targets.
• There has also been a slowdown in spending on the revenue and the capital side. It must be noted that the government has been consciously deferring or cutting down on revenue and capital spending. In fact, capital spending has hardly moved in November. The Indian economy is counting on government-sponsored capex to sustain GDP growth at higher levels. The slowdown in tax revenues and capex spending are concerns.
• Between September 2025 and November 2025, the fiscal deficit to target ratio is up from 36.5% to 62.3%. In absolute terms, the fiscal deficit is up 70.4% in last 2 months, which shows the pressure of tepid tax revenues and spending momentum despite steps taken by the government to cut down on spending. This has raised the spectre of the fiscal deficit overshooting the 4.4% of GDP target for FY26.
• In FY26, the revenue flows look erratic. That is because of bunching of revenue recognition in the national accounts. The hefty RBI dividend was fully recognized in May itself. Similarly, in September, the government recognized the Q3 advance tax revenues in the month of September itself which led to tepid revenue flows in the next two months. A more standardized approach to revenue recognition would help.

There are signs of stress on the fiscal deficit. Tax revenues have slowed and the government is trying hard to cut down on spending. This could impact future growth. But the immediate concern is that the fiscal deficit for FY26 could shoot beyond the budgeted 4.4% of GDP.

5 TAKEAWAYS FOR INDIAN INVESTORS FROM FISCAL DEFICIT DATA

For investors, it is not just the fiscal deficit, but the composition of the fiscal deficit and also the revenue deficit that matter. Here are some key takeaways for investors.

• Tax revenues have been meaningfully slower in FY26 with less than 50% of full year target achieved till November 2025. Bulk of the income tax refunds are not yet paid out, so, that could also put pressure on the tax revenues.
• The government has been going slow on revenue spending, which is a positive signal. However, it has also been going slow on capex spending, which is not a positive signal as capex by the government is crucial to boosting GDP growth.
• There is a strong possibility of the fiscal deficit spilling over beyond the targeted 4.4%. It is also likely that the government may allow the fiscal deficit to spill over in order to boost growth and offset the impact of US tariffs on Indian exports.
• While the fiscal deficit is at 62.3% of full year target as of the end of November 2025, the revenue deficit is at 68.2% as of November. Both the deficits are sharply higher than in FY25, indicating that revenue deficit could put pressure on the rupee.
• From a stock market perspective, low fiscal deficit is always welcome as it keeps FPIs interested. However, in India’s specific case (due to Trump tariffs), there is a case to boost growth through pump priming (using fiscal deficit as a tool of growth).

The fiscal deficit does show signs of spilling over beyond 4.4% of GDP in FY25, but that may be a strategy to purchase growth in a tough year. The bigger challenge for the government would be to give a big boost to net tax revenues and to spur capital spending.

 

LLM Summary India’s fiscal deficit for FY26 does show signs of spilling beyond the budgeted 4.4% of GDP.  That would be OK if the spike in fiscal deficit is temporary and is substantially utilized to boost capex. Fiscal deficit has to be funded and it is normally funded through borrowings. For FY26, the government was originally planning to fund over ₹23,500 Crore of fiscal deficit through external borrowings. However, that plan appears to be on hold due to the weakness in the rupee and its negative implications for the Indian economy. After nearly 3 years of robust growth in tax revenues, year FY26 has seen a slowdown in tax collections. This could only get worse once the bigger income tax refunds are paid out by the government. The government is in a dilemma. Tax revenues are falling and non-tax revenues can only compensate partially. At the same time, the onus is on the government to pump prime the economy through the use of fiscal deficit as a tool to boost capex. The challenge is that; this has to be done without offending the rupee or the rating agencies.