Centre’s capex up 40% in H1, fiscal deficit widens, Pg3.

Key Highlights:

• India's fiscal deficit reached 36.5% of the annual target in the first half (H1) of fiscal year 2026 (FY26), compared to 29.4% in H1FY25.
• The increase in fiscal deficit is attributed to a surge in capital expenditure (capex), which rose by 40% year-on-year in H1FY26.
• The Centre's capex stood at Rs 5.8 lakh crore, representing 51.8% of the annual target in H1FY26.
• Net tax revenues contracted by 2.8% to Rs 12.29 lakh crore due to income tax relief and modest indirect tax collection growth.
• Non-tax revenues surged by 30.5% to Rs 4.6 lakh crore, supported by higher dividends from the Reserve Bank of India (RBI).

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Detailed Insights:

• The fiscal deficit increase was influenced by a 40% rise in capital expenditure (capex) during H1FY26, compensating for a 15% fall in H1FY25 due to election-related slowdown.
• Robust capex is believed to have contributed to India's Q1FY26 GDP growth of 7.8%, which was higher than anticipated.
• While capex may contract by about 15% in the second half (H2) of FY26, the annual target of Rs 11.2 lakh crore is still expected to be met.
• The contraction in net tax receipts is partly due to income tax relief measures introduced in the Budget and the front-loading of tax devolution to states.
• Despite concerns about tax revenue growth, analysts anticipate that expenditure savings and higher non-tax revenues will help maintain the fiscal deficit target of 4.4% of GDP for FY26.

Key Concepts Involved:

• Fiscal Deficit: The difference between a government's total expenditure and its total revenue.
• Capital Expenditure (Capex): Funds used by a company to acquire or upgrade physical assets.
• Tax Devolution: The transfer of taxing powers from a central government to lower levels.