Expanded tax revenues surge by 12% due to robust GST collection, defying the income-tax relief measures implemented.
India's fiscal deficit for the April-May period of the current financial year, FY26, has significantly decreased to Rs 13,163 crore, which is only 0.8% of the full-year FY26 target of Rs 15.68 lakh crore, compared to 3.1% of the target in the same period last year [1][2][3][4].
This sharp decline in the fiscal deficit is primarily due to a record high dividend transfer of Rs 2.69 lakh crore from the Reserve Bank of India (RBI) in May 2025. This dividend substantially boosted non-tax revenue collections, which rose to Rs 3.57 lakh crore, constituting 61.2% of the full-year target, compared to 46.1% in the corresponding period last year [1][2][3].
Regarding tax collections:
- The net tax revenue for April-May FY26 was Rs 3.5 lakh crore, which accounts for 12.4% of the full-year target, showing a slight increase compared to 12.3% in the previous year [1]. - Gross tax revenue stood at Rs 5.15 lakh crore, up from Rs 4.60 lakh crore a year earlier [2][3].
The government's total receipts for the period were Rs 7.33 lakh crore, while total expenditure was Rs 7.46 lakh crore, indicating controlled spending despite a 14.7% increase compared to the budgeted target [1][3].
The large RBI dividend has cushioned the government's finances, allowing it to maintain a very low fiscal deficit early in the year. The higher non-tax revenue has reduced dependence on tax revenues to finance government spending. Tax collections have grown modestly but remain broadly in line with expectations, reflecting steady economic activity and effective tax administration.
The fiscal prudence and strong revenue inflows provide room for higher capital expenditure, which rose sharply to Rs 2.21 lakh crore in the same period, supporting infrastructure investment and economic growth [3].
However, it is important to note that both the domestic and global economic landscape has changed since the beginning of FY26, and it is too early to draw conclusions on the achievability of FY26 fiscal deficit targets. The government is targeting to bring down the fiscal deficit to 4.4% of GDP in FY26 from 4.8% in FY25.
In conclusion, the significant fall in fiscal deficit in April-May FY26 is mainly driven by a robust non-tax revenue inflow from RBI's record dividend payout, while tax revenues have shown stable growth, resulting in improved fiscal health early in the fiscal year [1][2][3][4].
- The decline in India's fiscal deficit is mainly attributed to a record high dividend transfer from the Reserve Bank of India (RBI), boosting non-tax revenue.
- This increased non-tax revenue has decreased dependence on tax revenues for financing government spending.
- Despite a 14.7% increase in total expenditure, the government has managed to maintain a very low fiscal deficit, thanks to the large RBI dividend.
- The higher capital expenditure, supported by robust non-tax revenue, is essential for infrastructure investment and economic growth.
- The improvement in fiscal health, due to prudent fiscal management and strong revenue inflows, may signal promising growth opportunities for wealth-management businesses, business, personal-finance, and investing in defi, finance, and the market.
