India Likely to Meet FY27 Fiscal Deficit Target of 4.3% on Strong Corporate Tax Collections: Goldman Sachs

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 estimate in the first six months. Strong corporate tax collections are helping offset revenue pressures, according to a recent report by Goldman Sachs Research.

The firm stated that the government would most likely achieve the target by reprioritising expenditure, even as higher interest payments and capital spending put pressure on its finances. The report 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 noted.

Goldman Sachs estimated that the fiscal deficit during April-September stood at 3.9 per cent of GDP and 42.6 per cent of the full-year budgeted amount. While this represents a higher pace than in recent years, it remains below the levels seen prior to the pandemic.

The fiscal position saw an improvement in September, during which the government’s position was balanced, contrasting with a deficit of Rs 2.6 lakh crore recorded in August. Higher direct tax collections, largely driven by advance tax payments, helped offset increased interest payments and capital expenditure during the month.

Direct tax collections grew 13 per cent year-on-year in September. This was driven by a 27 per cent increase in corporate tax receipts, whereas income tax collections contracted by 8 per cent during the same period.

Overall, corporate tax receipts have remained particularly strong throughout the financial year so far, rising approximately 22 per cent year-on-year against the Budget’s estimated growth of 12 per cent. Conversely, income tax receipts grew by around 9 per cent, which is below the budgeted growth estimate of 18 per cent.

The report highlighted that these strong corporate tax collections are acting as a cushion against the revenue impact of lower excise receipts, which followed reductions in petrol and diesel duties.

In recent revisions, the Centre scrapped the Rs 2.5 per litre export duty on petrol while increasing the levy on diesel to Rs 11.5 per litre from Rs 8.5. The levy on aviation turbine fuel (ATF) was raised to Rs 11 per litre from Rs 10.5, according to a Ministry of Finance notification.

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

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

Despite these positive indicators, the report cautioned that higher energy prices could exert pressure on the fiscal outlook by increasing fertiliser support requirements and prompting further fuel tax relief, which could complicate efforts to meet the annual deficit target.

"The resilience in corporate tax collections provides crucial fiscal headroom for the government. For businesses and entrepreneurs, steady macroeconomic indicators and fiscal discipline help maintain stability in the broader economic environment. While energy price risks and subsidy pressures require careful monitoring, proactive expenditure reprioritisation remains an effective tool for managing fiscal targets." — Dr. Shishir Gupta, Founder & CEO, StartupLanes