GDP Growth Without Tax Boom: The Real State of Revenues, Expenditures & Deficits

Why is GDP growth not feeding into expanding government revenues? Are we in for a tax-growth-less GDP growth era?

Are we in for a tax-growth-less GDP growth era? Does nominal GDP growth (8.8 percent only, less than the current Budget estimates of 10.1 percent) explain the contradiction?

(Photo: Aroop Mishra/The Quint)

On 28 November, the government released two sets of crucial economic numbers. Beating all estimates, official and independent, real GDP was reported to have grown by a robust 8.2 percent in the 25 September quarter (8 percent for a half year 2025-26).

Three cheers!

The fiscal numbers for seven months until October 2025, however, weren’t quite uplifting. The gross tax receipts (GTRs) recorded growth of only 4.02 percent. The Centre’s revenue and non-debt capital receipts (net tax receipts, non-tax receipts and capital receipts) were down by (-)3.35 percent.

Despite extraordinary growth in capital expenditures, total expenditures were higher by only 6.13 percent, with revenue expenditures being completely static at 0.03 percent growth.

The Central government’s fiscal deficit, consequently, was about 10 percent higher than the previous year. Why is the GDP growth not feeding into expanding government revenues? Are we in for a tax-growth-less GDP growth era? Does nominal GDP growth (8.8 percent only, less than the current Union Budget estimates of 10.1 percent) explain the contradiction?

All Round Slowdown in Revenues

The government had budgeted its net tax receipts (Rs 28.37 lakh crore) growth at 10.97 percent over 2024-25 revised estimates. At the end of October 2025, net tax receipt growth is down by (-)2.35 percent, which is partly explained by the fact that the Centre transferred a much higher share of taxes (15.49 percent) to the states.

Dynamism of Central taxes can be better understood by looking at individual taxes (corporation taxes, income taxes, GST, etc) and overall GTRs. In all three major taxes, receipts are significantly undershooting budgeted growth.

Until October 2025, the government received Rs 5.13 lakh crore in corporation taxes, only 5.18 percent higher than the revenues of Rs 4.88 lakh crore received during the last year. This is considerably lower than 10.41 percent growth budgeted for the year. As there was no giveaway on corporation tax in the Budget or otherwise, corporation tax under-performance is solely on account of poor economic and profitability performance of the corporate sector.

The Narendra Modi government had announced a major income tax bonanza for individual income taxpayers in the Budget by making incomes up to Rs 12 lakh a year tax-exempt and reducing effective taxes substantially for those earning up to Rs 25 lakh a year. Despite this, the government’s financial managers had budgeted an increase of 14.4 percent in non-corporate income tax receipts (Rs 14.38 lakh crore) for 2025-26.

For the first seven months, non-corporate income tax growth is tracking only 6.89 percent—less than half the required growth. A significant shortfall awaits the government this year as non-corporate tax growth seems to be stabilising around only six percent.

The Prime Minister announced GST double Diwali gift on 15 August. This has now become part of the GST tax system. GST tax data until October 2025 (which includes the effect of the big boost in sales in September as GST tax cuts became effective from 22 September), however, does not show any impressive spurt.

Central GST receipts were up only 8.8 percent in October 2025 despite a little sleight of hand. The Central government distributed Rs 20,968 crore more than the Integrated GST (IGST) it received, which artificially propped up Central GST receipts. However, with negative IGST growth and GST compensation receipts declining in October, the Central government‘s overall GST receipts were actually down by (-)11.7 percent for the month.

For seven months, Central GST receipts recorded growth of only 6.14 percent (much less than the budgeted 11.28 percent growth). Taking the IGST and Central GST together, the GST receipts growth at only 1.12 percent is far lower than the budgeted GST growth of 10.93 percent.

A big hole in GST receipts is staring in the face of the Central government.

All in all, all three big sources of central tax revenues—corporation tax, non-corporate income taxes, and GST—are staring at a significant under-performance this year.

To add to the woes, provisional GTRs for 2024-25 at Rs 37.95 lakh crore are less than Rs 38.53 lakh crore 2024-25RE. If GTRs grow at 6 percent over last year’s receipt, the Central government is likely to see at a shortfall of about Rs 2.5 lakh crore.

That would have quite a devastating effect on the Budget performance.

The Expenditure Compression is Showing

The Modi government loves to show up capital expenditure, irrespective of its actual investment and economic impact. Not surprisingly, the first half of 2025-26 witnessed a humongous increase of 40 percent in capital expenditures (Rs 5.8 lakh crore) over 2024-25.

Budget 2025-26 had planned a modest capital expenditure increase of 10.1 percent over 2024-25 RE (Rs 10.18 lakh crore). Required run rate during the year, however, is smaller as the government had ended up with a much higher capital expenditure of Rs 10.52 lakh crore (provisional) in 2024-25.

As the government is facing tremendous tax-receipt constraints, it is quite likely to slow down capital expenditures in the second half. It is already visible in the October 2025 capital expenditure data. The government could spend only Rs 36,997 crore in October (3.3 percent of the budget).

Revenue expenditures are already facing the heat.

At Rs 20.08 lakh crore in the first seven months, revenue expenditure growth over the last year is only 0.03 percent. The government has applied an unspoken, severe revenue expenditure cut. During August, September and October, revenue expenditures were at 74 percent, 79 percent and 92 percent of last year’s expenditures, respectively.

High growth in capital expenditure has certainly boosted GDP growth in the first half. Constraining revenue expenditures have shown up in negative government consumption growth in the second quarter. The GDP growth in the second half of 2025-26 will witness the adverse impact of constrained central government expenditures.

Fiscal Deficit Facing Deterioration

The government had planned to lower fiscal deficit—from 4.8 percent of GDP in 2024-25 RE to 4.4 percent—in the 2025-26 Budget. This is under threat for two big reasons.

First, severe tax-receipts compression (unlikely to be made up by non-tax revenues and capital receipts) of about 0.5 percent of GDP and inability to reduce expenditures (I hope the government does not resort to off-budget borrowings or postpone expenditures, as it used to do earlier) will force the government to borrow more.

Second, nominal GDP (which is currently reflecting real state of GDP more accurately) growth at 8.8 percent, is running 1.3 percent lower than budgeted GDP growth. If this growth rate stays for the year, fiscal deficit for 2025-26 will go up by about 0.1 percent.

If the government ends up borrowing Rs 1 lakh crore more, fiscal deficit to GDP for the year will deteriorate to 4.7 percent.

The climax is likely to be sad. The second half of 2025-26 is likely to be much sombre for both GDP growth and the government’s fiscal management. The ending is likely to be even sadder.

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)