India likely to meet FY27 fiscal deficit target: Goldman Sachs

The Centre is likely to meet its fiscal deficit target of 4.3% of GDP for FY27 despite the deficit reaching 42.6% of the full-year estimate in the first six months, as stronger corporate tax collections are helping offset revenue pressures, according to a report by Goldman Sachs Research.

The firm said the government would most likely achieve the target by reprioritising expenditure, even as higher interest payments and capital spending put pressure on its finances.
It also flagged risks from a possible rise in 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," the report said.

Goldman Sachs estimated that the fiscal deficit during April-September stood at 3.9% of GDP and 42.6% of the full-year budgeted amount, a higher pace than in recent years, although below the level seen before the pandemic.
The report highlighted the improvement in September, when the government's fiscal position was balanced, compared with a deficit of ₹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% year-on-year in September, driven by a 27% rise in corporate tax receipts, while income tax collections contracted 8% during the month.
Corporate tax receipts have been particularly strong during the financial year so far, rising around 22% year-on-year, against the Budget's estimated growth of 12%. Income tax receipts grew around 9%, below the budgeted growth estimate of 18%.

The report said strong corporate tax collections were helping cushion the revenue impact of lower excise receipts following reductions in petrol and diesel duties.
In the latest revision, the Centre has scrapped the ₹2.5 per litre export duty on petrol, while increasing the levy on diesel to ₹11.5 per litre from ₹8.5 and on aviation turbine fuel (ATF) to ₹11 per litre from ₹10.5, according to a Ministry of Finance notification.

The report cautioned that higher energy prices could put pressure on the fiscal outlook through increased fertilizer support and further fuel tax relief, which could complicate efforts to meet the annual deficit target. - ANI