India likely to meet FY27 fiscal deficit target despite spending pressures: Goldman Sachs

A Goldman Sachs report suggests India is likely to meet its fiscal deficit target of 4.3% of GDP for the fiscal year 2027 despite spending pressures. The Centre is currently on track to achieve this target, even though the deficit reached 42.6% of the full-year estimate in the first six months of the year, according to the research firm.

The government's ability to meet the target largely stems from stronger corporate tax collections, which are offsetting revenue pressures. Direct tax collections, primarily driven by advance tax payments, rose by 13% year-on-year in September, with corporate tax receipts increasing by 22% year-on-year. Income tax collections, however, contracted by 8% during the month, falling short of the budgeted growth estimate of 18%.

Higher interest payments and capital spending are putting pressure on India's finances, but the government is likely to tackle these challenges through reprioritisation of spending. Capital expenditure rose 17% month-on-month in September, although it remained 3% lower than a year earlier, mainly due to reduced spending on roads and highways. On a year-to-date basis, capital expenditure growth remained strong at 12.7%.

The report also warns about potential risks from rising fertiliser subsidies and additional fuel excise duty relief, should global commodity prices remain elevated. These factors could complicate efforts to meet the annual deficit target.