India’s Fiscal Deficit Isn’t the Worry. Tax Growth Is

The Government of India (GoI) released a routine press release for its receipts and expenditures on 5 August for the quarter ending June 2026. It received Rs 10.49 trillion (28.7 percent of 2026-27 budget estimates or BE) whereas total expenditures amounted to Rs 13.57 trillion (25.4 percent of 2026-27 BE). No fancy claims about the government doing very well; nor any admission of any poor performance. How did the GoI finances do in Q1? Was there a serious under-performance in tax revenues? Did the capital expenditure do well? Why did the GoI transfer less than normal tax share to the states? Is there something to worry about?Even With Fiscal Crunch, Modi's Budget Shows It’s Playing the Long Growth GameThe government presented 2026-27 budget estimates on 1 February 2026. It also provided BE and revised estimates (RE) for 2025-26. The government estimated its total revenue receipts to grow by 5.71 percent over 2025-26RE and its net tax revenue by 7.19 percent. The government planned total expenditures to grow by 7.70 percent and the capital expenditure by 11.50 percent over 2025-26RE. The provisional accounts for the year 2025-26 become available in May 2026, which provide near actuals for the year.The actual net taxes to the centre in 2025-26 were Rs 26.24 trillion, against Rs 26.75 trillion estimated in 2025-26RE, which effectively raised its asking rate of growth in the current year to 9.29 percent. Likewise, total expenditures in 2025-26 turned out to be Rs 49.05 trillion (against Rs 49.65 trillion estimated in 2025-26RE), raising the total expenditure growth target in 2026-27 to 9.01 percent. The government provides monthly actual data of budget performance with a lag of one month juxtaposing it against the actual performance in that very month in previous year (captured in the provisional data for 2025-26). It, therefore, makes more sense to assess the government’s budget implementation performance in relation to the provisional/ actual data than the growth rates estimated in the budget against previous year’s BE and RE.The data for June 2026 have been released on 31st July 2026. We can make a sound assessment of the government budget performance in the first quarter of 2026-27 using these numbers. Budget 2026-27 and India's Deficits-Borrowings: Don't Expect Any Tax BreaksThe gross tax receipts (GTR, total of all central taxes receipts) minus the transfer of states’ share in central taxes constitutes the centre’s own tax receipts. The centre’s own tax receipts may be manipulated somewhat by the centre by holding back the states’ share in central taxes. The GTRs performance thus captures the real performance of central government’s tax revenues.In the first quarter 2026-27, the GoI received Rs 9.01 trillion in GTRs, against Rs 8.69 trillion received in the first quarter of 2025-26, recording growth of merely 3.67 percent. The 2026-27BE for GTRs of Rs 44.04 trillion is 9.44 percent higher than the actual GTR receipts of Rs 37.96 trillion in 2025-26. Achieving GTRs growth of only 3.67 percent in the first quarter is thus a gross under-performance against required run rate of 9.44 percent. Incidentally, the GTR performance was quite bad in the first quarter of 2025-26 as well (4.60 percent). This should have created a favourable base effect for the GTRs to record much higher growth rate in the current year; instead, it turned out to be worse than last year underlying how far current year’s growth rate is. The GoI, seeing poor unfolding taxes growth in the first quarter, decided to pass on the burden to the states. It transferred only Rs 2.63 trillion to the states as their share in central taxes in the first quarter, much lower even in absolute numbers than Rs 3.27 trillion transferred in the first quarter of 2025-26; an absolute reduction of (-)19.45 percent.The GoI is, as per the system in vogue, is required to transfer 3 out of 14 instalments (BE/14) in the first quarter. This required the GoI to transfer Rs 3.27 trillion (three instalments of Rs 1.09 trillion) to the states. The amount actually transferred by the GoI was 19.5 percent less than normatively required. This short transfer allowed the GoI to retain Rs 6.37 trillion as its share of central taxes in the first quarter; 17.82 percent higher than Rs 5.40 trillion last year. Pathetic GTR growth (3.67 percent) was thus turned into a winner for GOI (growth 17.82 percent) at the cost of the states. The GoI’s performance was uneven across the taxes which constitute the GTRs. Corporation tax recorded excellent growth of 19.73 percent, and customs duty growth at 36.14 percent and security transaction tax (STT) at 44.88 percent were simply spectacular. Income tax recorded a middling growth at 6.85 percent. On the other hand, overall GST (including compensation cess) had a negative growth of (-)11.12 percent and excise duty receipts shrank by (-)22.40 percent. The government keeps highlighting overall GST (including state GST, IGST etc.) by quoting absolute numbers and also by cleverly comparing the GST receipts with last year’s GST minus GST compensation cess. This is not comparing apples with apples. In the first quarter, while flawed net GST growth at 7.14 percent was nothing to celebrate, gross GST (including compensation cess) in the first quarter of 2026-27 at Rs 6.21 trillion recorded growth of only 1.74 percent (against 11.51 percent in first quarter of 2025-26 and 11.69 percent in 2024-25. The GoI’s tax revenue performance by any reckoning was quite pathetic.India's Green Bonds Have Become a Climate Branding Exercise. Nothing MoreExpenditure growth was higher than budgeted. In line with the government’s stated priorities, the capital expenditures recorded a robust growth of 23.67 percent in the first quarter (Rs 3.40 trillion against Rs 2.75 trillion in 2025-26). There was notably much higher growth of 44.03 percent in the loans and advances released to the states and others. Excluding loans and advances (Rs 1.01 trillion), which actually does not amount to capital expenditures (until the states actually spend on capital expenditures), the capital expenditure growth of 16.75 percent was still higher than the estimated/assumed growth of 9.01 percent. Higher capital expenditure led to some squeeze on the revenue expenditures, which grew by 7.55 percent. No, PM Modi Didn’t Ask Women To Sell Gold and Deposit Their Money in BanksThe government did not plan for any growth in non-tax receipts (Rs 6.66 trillion in 2026-27 against Rs 6.68 trillion in 2025-26RE). As actual non-tax receipts turned out to be Rs 6.79 trillion in 2025-26, the asking rate of non-tax growth in 2026-27 is actually (-)1.88 percent. The GoI received Rs 3.78 trillion in NTRs in the first quarter (including Rs 2.87 trillion RBI dividend), which generated a positive growth of 1.23 percent against the asking rate of (-)1.88 percent. To this extent, NTR performance provided some cushion.The government’s capital receipts (disinvestment, monetisation of assets like that of NHAI and recovery of loans) were estimated to record a massive growth of 84.92 percent in the budget 2026-27 (from Rs 64,027 crore in 2025-26RE to Rs 1.18 trillion). As the actual receipts in 2025-26 amounted to Rs 83,757 crore, the asking rate of growth is lesser at 41.36 percent. The government’s disinvestment programme has gotten off to a flying start this year. It received Rs 35,003 crore in the first quarter against Rs 28,018 crore last year, which yielded growth of 24.93 percent, lower than the asking rate but still quite impressive. The NTRs and non-debt capital receipts performance helped somewhat in moderating the fiscal deficit. Even With Fiscal Crunch, Modi's Budget Shows It’s Playing the Long Growth GameThe government estimated a fiscal deficit of Rs 16.96 trillion, 7.7 percent higher than the fiscal deficit of Rs 15.58 trillion in 2025-26RE. The actual fiscal deficit in 2025-26 turned out to be lower at Rs 15.19 trillion. As a result, the government’s fiscal deficit can go up by 11.62 percent.Fiscal deficit at Rs 3.08 trillion in the first quarter is 9.65 percent higher than the fiscal deficit of Rs 2.81 trillion. It is lower than the asking rate of 11.62 percent. There is, therefore, much less worry about fiscal deficit at this point of time.The government’s tax performance in the first quarter has been, as noted above, awful. If this state of affairs continues, more difficult times await as bulk transfers like RBI dividend are already done. The government would also not be able to hold off states’ share in taxes any more. The expenditures would remain elevated in the rest of the year. Fertiliser and petroleum subsidies are expected to rise massively. It is the taxes' performance which will determine whether the government is able to deliver the budget well or slipping on it. (The author is economic and fiscal policy advisor, SUBHANJALI, former Finance & Economic Affairs Secretary, and author of 'The $10 Trillion Dream'. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)

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