'India likely to meet FY27 fiscal deficit target'

India is on track to meet its fiscal deficit target of 4.3% of GDP for the fiscal year 2027, despite the first half deficit reaching 42.6% of the projected figure, according to research from Goldman Sachs. Strong corporate tax collections are aiding the government in offsetting revenue pressures, which could help it stay on target by prioritising spending, the report suggests.

Goldman Sachs estimates that the fiscal deficit during April-September stood at 3.9% of GDP, which was higher than in recent years but still below pre-pandemic levels. The deficit narrowed significantly in September, reaching 3.9% of GDP, compared to a deficit of Rs 2.6 lakh crore in August.

Direct tax collections, mainly driven by advance tax payments, grew by 13% year-on-year in September, with corporate tax receipts up by 27%. Income tax collections, however, declined by 8% during the same period. Corporate tax receipts have been robust so far, growing by around 22% year-on-year, exceeding the budgeted growth of 12%. Income tax receipts, on the other hand, grew by 9%, below the budgeted growth of 18%.

The Centre has recently scrapped the Rs 2.5 per litre export duty on petrol and increased levies on diesel and aviation turbine fuel, which may have helped cushion the revenue impact of reduced excise receipts. Meanwhile, capital expenditure rose by 17% month-on-month in September but remained 3% lower than the previous year, mainly due to reduced spending on roads and highways.

Capital expenditure growth on a year-to-date basis for the financial year remained strong at 12.7%. Overall government spending increased by 12% year-on-year in September, while subsidy expenditure fell by 31%, reflecting lower food and fertiliser subsidies. The report cautions that higher energy prices could put pressure on the fiscal outlook through increased fertiliser support and further fuel tax relief, potentially complicating efforts to meet the annual deficit target.