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Informist, Friday, May 29, 2026

 

NEW DELHI – The Centre's fiscal consolidation seen in post-pandemic years is expected to continue in 2026-27 (Apr-Mar), the Reserve Bank of India said Friday. This augers well for medium-term growth, it said in its Annual Report 2025-26. "The central government's thrust on growth-inducing capital spending is expected to continue," the central bank said. 

 

The government aims to spend INR 12.22 trillion as capital investment in FY27, up 11.5%, in line with the Narendra Modi government's thrust on capital expenditure to drive economic growth. The government has increased capital expenditure by over six times since FY15.

 

While the Budget pegged the government's fiscal deficit in FY27 at 4.3% of GDP, the government now sees it at 4.5% of GDP, following a downward revision in India's nominal GDP under the new series. The ongoing war in West Asia, which has already prompted the government to cut excise duties to prevent the pass-through of higher fuel costs to consumers, poses a risk of fiscal slippage, with pressure building up on government revenues and a potential rise in expenditure. 

 

Despite these fiscal pressures, the government has said its focus on capital expenditure will continue. "The fiscal stress is indeed very much a reality, but at the same time the priority sector capex would really be a priority item which we would like to preserve and ensure that it continues at the budgeted level," Expenditure Secretary Vumlunmang Vualnam said earlier this month. 

 

According to the RBI, the government's Economic Stabilisation Fund will provide fiscal space against global headwinds. The government set up the Economic Stabilisation Fund to meet expenditure arising from uncertain geopolitical conditions, Finance Minister Nirmala Sitharaman had said in the Lok Sabha in March. The government has set a corpus of INR 1 trillion, funded through a combination of a cash outlay of INR 573.81 billion in FY26 and reallocation of funds from savings in other departments. 

On the receipts side, direct taxes are budgeted at 6.9% of GDP in FY27, the highest in more than a decade, RBI said. The Budget has projected gross tax collections to rise 8% to INR 44.04 trillion this fiscal year. Of the total tax mop-up, direct tax collections are expected to grow 11% to INR 26.97 trillion. This estimate now looks far-fetched as data released earlier this month showed the government missed the direct tax collection target for FY26 by over INR 810 billion. This means that to meet the FY27 Budget target, direct tax collections will have to rise 15% this year, nearly 4 percentage points higher than the growth assumed in the Budget.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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