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GS Paper: Indian Economy (Government Budgeting)

  • Central government capex surges 66%, fiscal deficit narrows

    Why in the News?

    The Central Government’s capital expenditure (capex) increased by 66% to ₹89,255 crore in June 2026, while the fiscal deficit narrowed by 46% to ₹1.45 lakh crore, reflecting strong public investment despite revenue pressures.

    Key Highlights

    • Capex: Up 66% YoY to ₹89,255 crore.
    • FY 2026-27 Capex Target: ₹12.22 lakh crore; 28% achieved in the first quarter.
    • Fiscal Deficit: Reduced by 46% in June.
    • Direct Taxes: Corporate tax up 20% and income tax up 7% (Apr-Jun).
    • Customs Duty: Increased 36%, supported by higher duties on gold and silver.

    Why is the Fiscal Position Under Pressure?

    • Urea subsidy increased 68% to ₹53,034 crore.
    • Excise collections declined 22% due to fuel duty cuts.
    • Weak GST growth affected overall revenue.
    • Higher global crude oil prices may increase future expenditure.

    Significance

    • Higher capex boosts infrastructure, employment and long-term economic growth.
    • Lower fiscal deficit improves macroeconomic stability.
    • Strong direct tax collections indicate resilient formal economic activity.

    Challenges

    • Rising subsidy burden.
    • Declining fuel excise revenue.
    • Volatile global oil prices.
    • Sustaining fiscal consolidation while maintaining capital investment.

    Capital Expenditure (Capex)

    • Spending that creates long-term productive assets, such as roads, railways, ports and power infrastructure.
    • Promotes economic growth by increasing productive capacity.

    Revenue Expenditure

    • Spending on salaries, pensions, subsidies, interest payments and day-to-day government operations.
    • Does not create permanent assets.

    Fiscal Deficit

    • Fiscal Deficit = Total Expenditure − (Revenue Receipts + Non-Debt Capital Receipts)
    • Indicates the government’s borrowing requirement during a financial year.
    • Primary Deficit: Fiscal deficit minus interest payments.
    • Revenue Deficit: Revenue expenditure exceeds revenue receipts.

    “[2025] A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabilities are ₹1,500 crores. What is the gross primary deficit?

    (a) ₹48,500 crores

    (b) ₹51,500 crores

    (c) ₹58,500 crores

    (d) None of the above.