Govt will have extra Rs 0.8 tn for capex in FY26 because of higher dividend by RBI, robust GDP: ICRA
The central government has extra space in the fiscal deficit to push up expenditure by at least Rs. 0.8 trillion in FY2026 relative to the Budget Estimates (BE), as the higher GDP and
RBI dividend payout
provide room for it, according to a report by
ICRA
.
The report highlighted various positive factors in the economy and added that the government could raise expenditure by Rs. 0.8 trillion in FY2026. If the full amount is used for capex, the total capex would rise to Rs. 12.0 trillion from the budgeted Rs. 11.2 trillion, raising its growth to 14.2 per cent, compared to 6.6 per cent currently.
ICRA said, "FY2025 fiscal deficit contained at 4.8 per cent of GDP; higher GDP, RBI dividend pay -out provides space for Rs. 0.8 trillion extra capex in FY2026."
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The report noted that the Government of India's fiscal deficit stood at Rs. 15.8 trillion in FY2025, which was slightly higher than the Revised Estimate (RE) of Rs. 15.7 trillion.
This increase of Rs. 0.1 trillion was mainly due to higher-than-budgeted capital expenditure (capex) of Rs. 0.3 trillion and lower non-debt capital receipts of Rs. 0.2 trillion. However, this was partly balanced by a lower-than-expected revenue deficit of Rs. 0.4 trillion.
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Despite this, the fiscal deficit was contained at 4.8 per cent of GDP, in line with the target for the year, thanks to a higher nominal GDP in the provisional estimates (PE) compared to the earlier forecast (FAE).
The report mentioned the positive outlook because in April 2025, the fiscal deficit was Rs. 1.9 trillion, about 12 per cent of the FY2026 BE, compared to Rs. 2.1 trillion in April 2024, which was 13 per cent of the FY2025 PE.
The decline came as a result of a drop in the revenue deficit to Rs. 0.5 trillion and a sharp increase in non-debt capital receipts. This helped absorb the 61 per cent year-on-year increase in capital spending during the month.
ICRA said the upward revision in the FY2025 GDP number supports the achievement of fiscal deficit and debt-to-GDP targets for FY2026.
Even though nominal GDP growth is expected to be lower at 9.0 per cent in FY2026 compared to the budgeted 10.1%, the fiscal deficit can still be held at 4.4 per cent of GDP. This also gives the government space for a small slippage of Rs. 300-350 billion.
The government also benefits from higher receipts, including Rs. 2.7 trillion as RBI dividend, which gives a cushion of Rs. 0.4 trillion.
There is also more room to raise excise duties on petrol and diesel, especially after the Rs. 2/litre increase in April 2025, due to softening global oil prices.
Additionally, as per data from the
Controller General of Accounts
(CGA), miscellaneous capital receipts in April 2025 have already reached about 46 per cent of the FY2026 BE of Rs. 470 billion.
So, as per ICRA, given these buffers, the GoI could push up expenditure by at least Rs. 0.8 trillion in FY2026 relative to the BE.
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