India August fiscal deficit accretion sobers to ₹1.30 Trillion

1 Oct 2025 , 03:39 PM

AUGUST 2025 FISCAL DEFICIT – GROWS AT A SLOWER RATE

In the months of June and July 2025, India had added ₹4.55 Trillion to the fiscal deficit. In comparison, the fiscal deficit accretion in August was restricted to ₹1.30 Trillion. However, that still meant that fiscal deficit as a share of full year deficit stood at 38.1% of the annual target. That is sharply higher compared to the same period last year, when just 27% of the full year fiscal deficit had been traversed. Remember, India has cut its fiscal deficit target this year to 4.4% of GDP. While it is too early to call, the government appears to be confident of meeting this deficit target, going by the fact that they have actually cut down their annual borrowing target by ₹10,000 Crore.

FY26 FISCAL DEFICIT – SOME EASING AFTER THE SHARP SPIKE

The table is a summary of government receipts, expenditures, and fiscal deficit for FY26.

Item Heads	Budget Estimate FY26 (₹ in Crore)	Actual (Aug-End) (₹ in Crore) #	Actual to Target (% achieved)
Revenue Receipts	34,20,409	12,50,739	36.6%
Tax Revenue (Net)	28,37,409	8,10,407	28.6%
Non-Tax Revenue	5,83,000	4,40,332	75.5%
Non-Debt Capital Receipts	76,000	31,970	42.1%
Total Receipts	34,96,409	12,82,709	36.7%
Revenue Expenditure	39,44,255	14,49,283	36.7%
Capital Expenditure	11,21,090	4,31,579	38.5%
Total Expenditure	50,65,345	18,80,862	37.1%
Fiscal Deficit	15,68,936	5,98,153	38.1%
Revenue Deficit	5,23,846	1,98,544	37.9%
Primary Deficit	2,92,598	69,485	23.7%

Data Source: Controller General of Accounts (# – 5 months data)

Fiscal deficit target for FY26 is sharply higher in absolute terms and relative terms compared to FY25. The reasons are not far to seek. This year, the government is spending a lot more aggressively on defence and also capex to boost growth, amid the tariff fiasco. As of end August 2025, the fiscal deficit stood at ₹5,98,153 crore, or 38.1% of FY26 fiscal deficit target. In contrast, at the end of 5 months, the FY25 fiscal deficit had stood at ₹4,35,176 Crore or 27.0% of full year target. Remember, the fiscal deficit in FY26 was almost negligible at the end of May, but added ₹4.55 Trillion in June and July; and another ₹1.30 Trillion in August 2025. Let us look at some unique statistics pertaining to FY25 fiscal deficit data.

FY26 FISCAL DEFICIT DATA DOES HAVE A PROBLEM

The fiscal deficit problem in FY26 is not just emanating from the tariffs and the visa restrictions. It is also emanating from the lower revenues in the current year due to an overall slowdown in tax collections, including securities transaction tax. If you look at net tax revenues, the government has only reached 28.6% of full year target in FY26, compared to 33.8% target achieved at the end of 5 months in FY25. This trend is visible in total receipts too. To worsen things, the capex this year is already 38.5% of full year target, compared to 27.1% in the same period last year. This combination of lower revenues and higher spending in FY26 is likely to put a lot more pressure on fiscal deficit in the remaining months of FY26.

TALE OF 2 DEFICITS: FISCAL AND REVENUE DEFICIT

Finally, how the 2 principal deficits; fiscal deficit and revenue deficit look like in FY26. Fiscal deficit at ₹5.98 Trillion was 38.1% of full-year target of 15.69 Trillion. The entire fiscal deficit accretion literally happened in the last 3 months only. What about revenue deficit for FY26? The revenue deficit has also surged sharply to 37.9% of full year target, as the RBI dividend impact has been largely offset. However, revenue spending has risen sharply in last 3 months, and that is having an impact.

Revenue deficit to fiscal deficit ratio is at 33.2% as of end August 2025, at par with the FY26 ratio target of 33.4%. The good news is that the government has cut the full year borrowing target by ₹10,000 crore. However, whether that is a signal that fiscal deficit will be in control; is not too clear. For now, it does look like the government may even permit some leeway on the fiscal deficit. After all, when growth falters, that is what really matters!