Strong Corporate Tax Collections May Help India Meet FY27 Fiscal Deficit Target: Goldman Sachs

New Delhi, Nov 2 (KNN) The Centre is likely to meet its fiscal deficit target of 4.3 per cent of GDP for FY27 despite the deficit reaching 42.6 per cent of the full-year budget estimate in the first six months, as stronger corporate tax collections help offset revenue pressures, according to a report by Goldman Sachs Research.

The report said the government could meet its target by reprioritising expenditure, despite pressure on public finances from higher interest payments and capital spending.

It also highlighted risks of higher fertiliser subsidies and additional fuel excise duty relief if global commodity prices remain elevated.

“We continue to expect the central government to stick to the 4.3% of GDP fiscal deficit target, most likely through re-prioritisation of spending,” ANI reported, citing the report.

Goldman Sachs estimated that the fiscal deficit during April-September stood at 3.9 per cent of GDP, equivalent to 42.6 per cent of the full-year budgeted amount. While the pace was higher than in recent years, it remained below the level recorded before the pandemic.

Strong Corporate Tax Collections Support Revenues

The government's fiscal position improved in September, when it recorded a balanced position compared with a deficit of Rs 2.6 lakh crore in August. Higher direct tax collections, largely driven by advance tax payments, offset increased interest payments and capital expenditure during the month.

Direct tax collections grew 13 per cent year-on-year in September, led by a 27 per cent increase in corporate tax receipts. Income tax collections, however, contracted 8 per cent.

For the financial year so far, corporate tax receipts have risen around 22 per cent, against the Budget's projected growth of 12 per cent. Income tax collections grew around 9 per cent, below the budgeted estimate of 18 per cent.

The report said stronger corporate tax receipts were helping cushion the revenue impact of lower excise collections following reductions in petrol and diesel duties.

Spending Pressures and Subsidy Risks

Capital expenditure rose 17 per cent month-on-month on a seasonally adjusted basis in September, but remained 3 per cent lower than a year earlier, mainly due to reduced spending on roads and highways. However, capital expenditure growth remained strong at 12.7 per cent on a year-to-date basis.

Overall government spending increased 12 per cent year-on-year in September, while subsidy expenditure declined 31 per cent, reflecting lower food and fertiliser subsidies.

Goldman Sachs flagged the possibility of higher fertiliser subsidies and additional fuel excise duty relief if global commodity prices remain elevated. Such measures could add to fiscal pressures alongside higher interest payments and capital spending.

The report maintained that the Centre was likely to stick to its 4.3 per cent fiscal deficit target, primarily by reprioritising expenditure.

(KNN Bureau)