Capex grows 12% in April-September; fiscal deficit rises around 25%

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Substantial increase in subsidy, especially on urea, impacted fiscal deficit

By Shishir Sinha

Updated - October 31, 2026 at 10:39 AM. | New Delhi

TIRUCHI, TAMIL NADU, 10/11/2016: A bank official counting hundred rupee bundles at the main branch of State Bank of India at Cantonment in Tiruchi, for exchange of currency notes on November 10, 2016. Photo: B.Velankanni Raj | Photo Credit: VELANKANNI RAJ B

Capital expenditure during the first six months (April-September) of the current fiscal recorded a growth of 12 per cent and reached over 53 per cent of the Budget Estimates, data made public by Controller General of Accounts (CGA) showed. However, there are some challenges ahead. 

Meanwhile, substantial increase in subsidy, especially on urea, impacted fiscal deficit — the gap between income and expenditure. Owing to this, fiscal deficit saw an increase of around 25 per cent. Similarly, it exhausted nearly 42 per cent of the budget estimates. Experts feel that fiscal deficit might overshoot the budget estimates but without any increase in borrowing. 

Data from CGA showed that capital expenditure during April-September period was over ₹6.54 lakh crore as against over ₹5.80 lakh crore during the corresponding period of the last fiscal.

Capex retreat

Though the six-month period has seen an increase, September is the second successive month when capital expenditure has declined compared with the corresponding months of the last fiscal. 

According to Aditi Nayar, Chief Economist at ICRA, capex declined by 3 per cent in September as against the corresponding month of the last fiscal, after contracting by 30 per cent in August.

“With this, capex growth has tapered to just 2.8 per cent in Q2 FY2027 from 23.7 per cent in Q1, which may weigh on the GDP growth outcomes. With capex rising by 12.7 per cent in H1 FY2027, the asking rate for H2 stands at a considerable 16.2 per cent, Nayar said. 

Urea subsidy

Meanwhile, data showed that subsidy on urea has touched over ₹85,000 crore in a six-month period, which is 73 per cent of the budget estimates. At the same time, a nutrient based subsidy reached over ₹33,600 crore, which is nearly 62 per cent of the budget estimates. This, along with other expenditures, widens the fiscal gap. Accordingly, the Centre’s fiscal deficit touched 42.1 per cent of the full-year Budget target in the first six months of the current fiscal year.

In absolute terms, fiscal deficit, or gap between expenditure and revenue, stood at ₹7,14,413 crore at September-end 2026. In the year-ago period, the deficit was 36.5 per cent of 2025-26 Budget Estimates (BE). The Centre has set a fiscal deficit target of 4.3 per cent of the GDP, or ₹16.96 lakh crore, for 2026-27. CGA showed that the central government’s net tax revenue stood at ₹12.76 lakh crore, or 44.5 per cent, of this fiscal BE in September. The collection was 43.3 per cent in the year-ago period. 

Nayar said that with global energy prices remaining at elevated levels, ICRA expects an overshooting on the fertilizer and fuel subsidy front, as well as a shortfall on the receipts side, which is expected to result in a modest fiscal slippage of ₹1.3-1.4 lakh crore relatives to the FY27 target. However, this could be partly absorbed by expenditure savings, which had amounted to as much as ₹1.6-1.7 lakh crore during FY25-26.

Additionally, “a fiscal slippage may not necessarily manifest into higher borrowings, given that small savings inflows have surged by 54 per cent YoY in H1 FY2027 and are set to overshoot the budgeted levels for FY27,” she said. 

Published on October 30, 2026

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