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Informist, Wednesday, Sept. 17, 2025

 

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--Fin min source: See no need to cut capex to meet FY26 fiscal gap as of now
--Fin min source:See no need to up FY26 borrowing to meet fisc gap as of now
--Fin min source:Apr 1-Sept 16 direct tax mop-up may be better than expected
--Fin min source: Don't want to cut capex loans to states to curb spending
--Fin min source: See RBI surplus mitigating some revenue shortfall in FY26
 

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The government is in no mood to take its foot off the pedal on public spending, especially capital expenditure, or even change the borrowing programme for 2025-26 (Apr-Mar) amid rising concerns of lower revenues during the year, according to a top finance ministry official. "We don't see the need to make adjustments on the spending side or on the borrowing side as of now," the official told Informist. "We are sticking to our Budget estimates, there is serious commitment to fiscal consolidation," the official said.

 

After couple of years of high tax buoyancy, the government has found itself in a soup in FY26 with collections lagging Budget estimates so far. Taxes have grown only 0.8% in the first four months of the current fiscal year to INR 10.93 trillion. Out of its total pool, direct tax collection has been particularly poor as a fallout of two things -- income tax cuts announced in the Budget for FY26 and the extension of the deadline to file tax returns by 47 days to Tuesday from Jul. 31.

 

Risks of fiscal slippage have only exacerbated after the GST Council overhauled the goods and services tax structure which will lead to revenue implication of INR 480 billion annually. Considering that the tax changes will be effective Monday, the revenue implication for the Centre this year will be around INR 120 billion. The GST Council on Sept. 3 decided to overhaul the tax regime by tweaking the four-slab structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on sin and luxury goods.

 

According to the finance ministry official, the next direct tax collections data, which the Central Board of Direct Taxes will release this week, will show improved tax collection figures. "Besides, after the GST cut, increased consumption will mean better GST collections as well. The collections for the current fiscal till Sept. 16 are expected to be better and break the current trend," the official added.

 

The government has projected a fiscal deficit target of 4.4% of GDP in FY26, marking it the last leg of the fiscal consolidation roadmap. The fiscal deficit in the first four months of FY26 was INR 4.68 trillion, 69% higher than the deficit in the same period a year ago and accounted for 29.9% of the Budget target of INR 15.69 trillion for FY26, lower than 33.9% in the first four months of FY25.

 

In the past, the government has turned to expenditure rationalisation to meet its fiscal deficit target. But according to the finance ministry official, there is no necessity to do so as of now. "We anyway can't cut revenue expenditure, and there is no requirement to cut capital expenditure," the official said. "We don't want to lower the allocation for 50-year interest free loans to states either, as the states are achieving their milestones and demanding funds under the scheme," the official added.

 

In the Union Budget for FY26, the government has earmarked INR 1.50 trillion for Scheme for Special Assistance to States for Capital Expenditure in the form of 50-year interest-free loans. The allocation of loans for states is part of the government's total capital expenditure target of INR 11.21 trillion for FY26. In the first four months of this fiscal, capital expenditure is up 33% on year at INR 3.47 trillion. 

 

To give a full picture, the government's total expenditure is up over 20% in Apr-Jul at INR 13 trillion while total receipts are up 7% at INR 10.95 trillion.

 

The government has fiscal legroom from the Reserve Bank of India's surplus transfer, the official said. "Any shortfall in tax collections will be mitigated by this," the official said. In May, the RBI's central board approved the transfer of record INR 2.69 trillion to the government as surplus for FY25. The Union Budget for FY26 has pencilled in INR 2.56 trillion as receipts from the RBI's surplus transfer and dividends from state-owned financial institutions this year.

 

"The surplus will also help offset the shortfall from government's divestment receipts," the official added. The government has raised only INR 36.73 billion as disinvestment proceeds this year against a Budget target of INR 470 billion. This INR 470 billion will come from both stake in public sector units and asset monetisation. The government discontinued the practice of giving a specific target for divestment receipts in the Interim Budget for FY25. The finance ministry had said keeping a fixed divestment target was difficult due to market volatility. Prior to FY24, the government had met its divestment target in only two out of the previous 10 years.

 

The other option that the government has in case meeting the deficit becomes a tall task, is to increase its borrowing in the Oct-Mar period. "At this juncture, that is also ruled out...we want to stick to our borrowing plan as we want a predictable and stable programme," the official said. Concerns of supply greater than the current gross borrowing aim of INR 14.82 trillion for FY26 have surfaced in the wake of dwindling tax revenues.

 

The government is expected to release its Oct-Mar borrowing calendar later this month. The RBI, which acts as the debt manager to the government, has been holding consultation meetings with bond market participants over the last two weeks and has likely passed on the feedback to the finance ministry.  End

 

Edited by Ashish Shirke

 

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