India is expected to meet its FY26 fiscal deficit target of 4.4% of GDP, despite revenue shortfalls from GST 2.0, supported by higher RBI dividends and effective expenditure management, says CareEdge Ratings.
India is likely to meet its fiscal deficit target of 4.4 per cent of GDP in FY26 despite anticipated revenue loss from the implementation of GST 2.0, according to a report by CareEdge Ratings.
The report noted that while the rationalisation of GST is expected to result in a revenue shortfall, the government’s fiscal consolidation path remains achievable. CareEdge projected that the fiscal deficit for FY26 will be contained at the budgeted level of 4.4 per cent of GDP.
As per the report, the rationalisation of GST has been estimated to cause a net revenue shortfall of around 0.1 per cent of GDP for the current fiscal year.
However, the report highlighted that this shortfall is expected to be cushioned by the higher dividend transfer from the Reserve Bank of India (RBI). The higher inflow from the central bank is likely to provide crucial support to government finances at a time when tax collections face pressure.
It stated “We expect the net revenue shortfall from GST rationalization……. to be cushioned by the higher RBI dividend transfer”.
The report noted that higher RBI dividend transfers and the government’s focus on expenditure management will play a key role in keeping the deficit within the budgeted limits.
The report also said that while GST rationalisation could reduce collections in the short term, it is expected to improve the buoyancy of tax revenues in the medium to long term.
It cautioned that lower nominal GDP growth this year could pose some challenges for tax collections. If revenue pressures persist, government expenditure could come under strain during the second half of FY26 as authorities remain committed to the fiscal consolidation path.
While direct tax collections have lagged behind expectations so far, indirect tax collections have performed better.
The report mentioned that the growth in GST revenues and union excise duties has supported overall indirect tax inflows, partly balancing the weakness seen in direct taxes.
In conclusion, the report maintained that despite revenue pressures from GST rationalisation and slower-than-expected tax collection growth, the fiscal deficit target of 4.4 per cent of GDP for FY26 is achievable. (ANI)
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