ANI New Delhi

The Central government is expected to meet its fiscal deficit target for FY26 by cutting back on capital expenditure to offset potential shortfalls in income tax and GST collections, according to a report by Goldman Sachs.

The report highlighted that central government capex contracted sharply in October, declining by around 28 per cent year-on-year. This fall was mainly due to lower capex transfers to states, even as defence capex continued to remain strong.  It stated, "We continue to expect the central government to meet its fiscal deficit target of 4.4 per cent of GDP for FY26 by reducing expenditure (likely capex), to offset potential income tax and GST shortfalls". 

In contrast, current expenditure rose sequentially because of higher interest payments, though it stayed lower compared with the same month last year. On the receipts front, direct taxes declined sequentially due to lower income tax and corporate tax collections. GST collections also contracted, following recent rate reductions, and are expected to remain subdued in the coming months. 

Despite these pressures, Goldman Sachs said it continues to expect the Centre to achieve its fiscal deficit target for FY26 by reducing expenditure. According to the report, the fiscal deficit for April-October 2025 stood at 4.0 per cent of GDP (GSe), compared with the budget estimate (BE) of 4.4 per cent for the full year.