Capex up 66%, fiscal deficit down 46%: June finance data signals mixed picture

The central government's capital expenditure surged 66% year-on-year in June to Rs 89,255 crore, according to data released by the Controller General of Accounts. Despite the sharp increase in investments, total spending remained unchanged from the same month last year, as a 31% decline in interest payments helped lower revenue expenditure by 8%.

The strong June capex puts the Centre on track to meet its full-year target of Rs 12.22 lakh crore for 2026-27. In the first three months of the fiscal year, 28% of the target has been achieved. However, subsidy outgo also rose sharply, with urea subsidy spending up 68% in April-June to Rs 53,034 crore.

On the revenue side, gross tax collections in June grew only 6% year-on-year. Excise mop-up fell 25% to Rs 21,951 crore, reflecting the duty cuts on petrol and diesel announced in late March. In the first quarter, excise collections were down 22% at Rs 43,149 crore, against the full-year budget estimate of Rs 3.89 lakh crore – only 11% of the target has been realised so far.

Aditi Nayar, Chief Economist at rating agency ICRA, described Goods and Services Tax collection growth as "weak" for April. However, she noted that customs duty inflows surged 36%, aided by duty hikes on gold and silver, elevated global commodity prices, and a low base.

Devendra Kumar Pant, Chief Economist at India Ratings & Research, said the first-quarter finance data suggest the impact of the West Asia war on government finances is "not significant". He added: "The impact of higher oil prices is not yet fully visible on Union government finances. Had the government not reduced excise duty on petrol and diesel, the tax collections would have been higher."

Direct tax collections showed healthier growth. Income tax collections rose 7% in June and in the first quarter. Corporate tax mop-up was up 17% in June and 20% in the quarter.

The Centre's fiscal deficit – the gap between income and expenditure that is bridged by borrowing – stood at Rs 1.45 lakh crore in June, down 46% from the same month last year. A key reason for this reduction was the government not transferring an extra instalment of tax devolution to states in June.

Tax devolution to states is typically transferred in 14 instalments each year. While the additional two instalments have traditionally been paid towards the end of the fiscal year, the post-pandemic period has seen them advanced due to improved finances. In June 2025, the Centre transferred Rs 1.63 lakh crore to states, double the amount in the previous two months. In June this year, Rs 87,779 crore was transferred, unchanged from May. This helped net tax collections – gross collections adjusted for refunds and devolution – post a 52% growth in June and 18% in April-June.

Pant noted that the April-June net tax revenue growth is "much higher" than the budgeted growth of just over 7%. The quarter's fiscal deficit of Rs 3.08 lakh crore is 18.2% of the Budget estimate of Rs 16.96 lakh crore.

Madan Sabnavis, Chief Economist at Bank of Baroda, flagged potential risks: "Depending on how the war pans out and crude oil plays, it does look like that the expenditure on the revenue account could be higher; and in case capex is maintained, there can be pressure on the fiscal deficit ratio. In the stressed case there can be a slippage of 0.3-0.4% of GDP. Higher growth in GDP will provide a statistical cushion, however."