Fiscal deficit surges in October 2025, as revenue flows falter

5 Dec 2025 , 12:51 PM

OCTOBER 2025 FISCAL DEFICIT – A SHARP SURGE

For the month of October 2025, fiscal deficit increased sharply from ₹5.73 Trillion to ₹8.25 Trillion. This 44% surge in fiscal deficit in a single month, was largely driven by weak revenue growth. There is an interesting background to this. In September 2025, there was a small fiscal surplus. However, that surplus was more because the advance taxes were collected in September and they were recognized in September itself. This led to front-loading of revenue recognition. Now it is reality biting!

Consider these data points. For October 2025, the revenue receipts stood at ₹67,934 Crore, compared to ₹4,44,707 Crore in September 2025. This sharp fall was largely due to the early recognition of advance tax collections in September. Net tax revenues fell from ₹4,18,963 Crore in September to ₹44,931 Crore in October. This fall is due to the front loading of tax revenues in September. One reason is also that government started paying out income tax refunds, which is impacting the net tax revenues. Essentially, expenses were at par, but the sharp fall in revenues spiked the fiscal deficit.

FY26 FISCAL DEFICIT – 52.6% AS OF OCTOBER 2025

Here are government receipts, expenditures, and fiscal deficit for the 7 months of FY26.

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actual (Apr-Oct) (₹ in Crore) #	Actual to Target (% achieved)
Revenue Receipts	34,20,409	17,63,380	51.6%
Tax Revenue (Net)	28,37,409	12,74,301	44.9%
Non-Tax Revenue	5,83,000	4,89,076	83.9%
Non-Debt Capital Receipts	76,000	37,095	48.8%
Total Receipts	34,96,409	18,00,475	51.5%
Revenue Expenditure	39,44,255	20,07,876	50.9%
Capital Expenditure	11,21,090	6,17,743	55.1%
Total Expenditure	50,65,345	26,25,619	51.8%
Fiscal Deficit	15,68,936	8,25,144	52.6%
Revenue Deficit	5,23,846	2,44,496	46.7%
Primary Deficit	2,92,598	1,51,429	51.8%

Data Source: Controller General of Accounts (# – 7 months data)

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

• There has been a sharp fall in the revenue flows in October 2025 compared to September. That fall is because most advance tax flows were captured in September. Hence October revenues are tepid and also facing pressure of tax refunds.
• While revenue spending for FY26 was 50.9% at the end of 7 months, the capex is 55.1% of full-year target. It is very likely that while the government may tighten its belts on the revenue deficit front, but capex spending is likely to remain elevated. In fact, capital spending could even overshoot to maintain economic growth momentum.
• The fiscal deficit in October 2025 has risen from 36.5% of full-year target in September to 52.6% of full year target in October 2025. In absolute terms, the fiscal deficit is up nearly 44% in last 1 month. The indications are that government will not hesitate to spend to boost macroeconomic growth, even if fiscal deficit has to spike!
• Tax revenues in FY26 continue to disappoint compared to FY25. For example, despite the surge in tax flows in September, the net tax revenues as of October 2025 stands at just 44.9% of the full-year target. It was well above 50% in the same period last year.

To sum up, the fiscal deficit is showing signs of stress. Big revenue items like the RBI dividend and advance taxes have been front loaded. The government is also considering the use of fiscal deficit as a tool for fiscal expansion. The remaining 5 month could be critical.

TALE OF 2 DEFICITS: FISCAL AND REVENUE DEFICIT

A quick word on the 2 principal deficits; fiscal deficit and revenue deficit for FY26. Fiscal deficit at ₹8.25 Trillion went from 36.5% to 52.6% of full year target in October 2025. This time, the fiscal deficit accretion has been an outcome of lower revenues rather than higher spending. What about revenue deficit for FY26? The revenue deficit had sobered to 5.2% of full year deficit in September but has bounced back to 46.7% of annual target in October.

Revenue deficit to fiscal deficit ratio stands at 29.6% of full-year target as of end October 2025. For FY26, this ratio is supposed to be 33.4%, which looks realistically at par with the ratio of target revenue deficit to target fiscal deficit for the year. It is not too clear if the government will close FY26 within its aggressive fiscal deficit target of 4.4% of GDP. For now, it does look to be a tough ask. With spending compulsions and tepid revenues, spilling over of fiscal deficit looks par for the course. Especially, with Q2 real GDP growing at 8.2%, the government would not want to lose out on the economic growth momentum!