Home / Business and Economy / Govt Eyes FY26 Target: Capex Cuts to Fund Deficit?
Govt Eyes FY26 Target: Capex Cuts to Fund Deficit?
2 Dec, 2025
Summary
- Government may reduce capital expenditure to meet fiscal deficit goal.
- Income tax and GST collections are projected to fall short.
- Central government capex declined sharply by 28% in October.
Goldman Sachs reports indicate the central government is poised to meet its fiscal deficit target of 4.4% of GDP for FY26. The projected strategy involves reducing capital expenditure to compensate for potential shortfalls in income tax and GST revenue. This approach is highlighted by a sharp 28% year-on-year decline in central government capex observed in October, primarily due to decreased transfers to states.
Direct tax receipts have contracted sequentially, influenced by lower income and corporate tax collections. Similarly, GST revenues are facing pressure and are expected to remain subdued following recent rate reductions implemented in late September. Despite these revenue challenges, the report suggests the government will likely achieve its fiscal deficit goal through careful expenditure management.
The fiscal deficit for April-October 2025 stood at 4.0% of GDP, below the budget estimate. This trend reinforces the expectation that expenditure rationalization, especially in capital spending, will be crucial for maintaining the fiscal deficit within the targeted 4.4% for FY26.
