India's Capital Expenditure Rises 12% in H1 FY2027 as Fiscal Deficit Widens to 42% of Budget Estimates

India's capital expenditure during the first six months of the current fiscal year (April–September) recorded a growth of 12 per cent, reaching over 53 per cent of the Budget Estimates, according to data released by the Controller General of Accounts (CGA). Despite this positive trajectory in the first half, economic observers note that several challenges lie ahead for the remainder of the financial year.

Capital expenditure during the April–September period stood at over ₹6.54 lakh crore, compared to over ₹5.80 lakh crore during the corresponding period of the previous fiscal year. However, the data highlights a tapering trend in recent months. September marked the second consecutive month where capital expenditure declined compared to the same month last year. According to Aditi Nayar, Chief Economist at ICRA, capex contracted by 30 per cent in August and further declined by 3 per cent in September.

Nayar noted that capex growth tapered to 2.8 per cent in the second quarter of FY2027, down from 23.7 per cent in the first quarter, which may influence broader GDP growth outcomes. With capital expenditure rising by 12.7 per cent in the first half of FY2027, the required growth rate for the second half stands at 16.2 per cent.

Simultaneously, a substantial increase in subsidies, particularly for urea, impacted the fiscal deficit, which represents the gap between government income and expenditure. The fiscal deficit saw an increase of approximately 25 per cent, exhausting nearly 42 per cent of the budget estimates during the six-month period.

Data indicates that the subsidy on urea reached over ₹85,000 crore in the first half of the year, accounting for 73 per cent of the budget estimates. Additionally, nutrient-based subsidies reached over ₹33,600 crore, or nearly 62 per cent of the budget estimates. These expenditures contributed to the Centre's fiscal deficit touching 42.1 per cent of the full-year Budget target by the end of September 2026.

In absolute terms, the fiscal deficit stood at ₹7,14,413 crore at the end of September 2026. In the preceding year's corresponding period, the deficit was 36.5 per cent of the budget estimates. The Centre has established a fiscal deficit target of 4.3 per cent of the GDP, or ₹16.96 lakh crore, for 2026-27. Meanwhile, the central government's net tax revenue stood at ₹12.76 lakh crore, representing 44.5 per cent of the fiscal budget estimates in September.

ICRA projects a modest fiscal slippage of ₹1.3 to ₹1.4 lakh crore relative to the FY27 target, driven by elevated global energy prices, potential overshooting on fertilizer and fuel subsidies, and shortfalls on the receipts side. However, this slippage could be partially offset by expenditure savings, which ranged between ₹1.6 and ₹1.7 lakh crore during FY25-26. Furthermore, experts suggest that fiscal slippage may not translate into higher borrowings, as small savings inflows surged by 54 per cent year-on-year in the first half of FY2027, surpassing budgeted levels.

"The growth in capital expenditure during the first half of the fiscal year demonstrates a continued focus on public investment, which is vital for sustained economic momentum. However, the widening fiscal deficit driven by elevated subsidy outlays highlights the delicate balance policymakers must maintain between growth-oriented spending and fiscal discipline. Monitoring the execution of capital expenditure in the second half will be crucial for assessing overall macroeconomic stability and growth outcomes." — Dr. Shishir Gupta, Founder & CEO, StartupLanes