If the month of September saw a fiscal surplus that is largely due to bunching of advance tax flows in the month of September ahead of 15-Sep deadline. It led to a surge in tax revenues, which is entirely recorded as net tax receipts in the month of September. As a result, the net tax flows in September are up nearly 3-fold at ₹4.19 trillion, compared to just ₹1.48 trillion in August 2025. It is almost similar to the bunching of RBI dividend in May 2025, earlier this year. 

In the coming months, the net tax flows are likely to be hit by three factors. The overall tax flows have been front-loaded into September, so we may see a sharp normalization of tax flows in the next 2 months. Secondly, most of tax refund payments will start from November and that will start to reflect in the net tax numbers of the government of India. Thirdly, it is important to note that tax flows are well below annual targets, and the GST rate cut is likely to create some immediate fall in revenues. The revenue compensation from higher demand will take some time to pan out. Till then, tax flows will be under substantial stress! 

While tax revenues will be under stress, there is also going to be pressure from the spending side. The government has already crossed 51% of the full year target on the capital spending front. As the government continues to take the initiative on capital spending, this figure is likely to overshoot the budget target. Also, on the expenditure side, the higher dearness allowance to government staff and the higher revenue spending on the defence services are likely to keep the spending bill under pressure. With the losses due to prolonged monsoons, the government is likely to see a surge in its subsidy bill. Spending will put pressure! 

The big question, is amidst this mixed performance on fiscal front; can fiscal deficit be defended at 4.4% of GDP? As we noted, there are two cautionary tales here; first on the revenue side, and the other on the spending side. Tax flows are likely to be under pressure, although that is likely to be partly compensated by non-tax flows like dividends and the asset monetization plan. A bigger issue is on the spending side. Capex is a must to boost growth amid the tariff worries. Also, certain revenue expenses like pay hikes, defence spending outlays, and subsidies are inevitable. For now, 4.4% fiscal deficit target still looks tough. If the breach is small, it may not matter. Else, it change the fiscal narrative!