Despite GST 2.0 revenue hitting targets, India could reach fiscal deficit targets for fiscal 26: Report
Despite an estimated loss of revenue loss from implementing GST 2.0, India could achieve its fiscal deficit target of 4.4% of its GDP in fiscal 26, despite an estimated loss of revenue from implementation of GST 2.0. The report said that although GST rationalization is expected to lead to revenue inflation, the government’s path to fiscal mergers can still be achieved. CareEdge estimates fiscal deficits for fiscal 26 are included at the budget level of 4.4% of GDP.
According to the report, rationalization of GST’s estimates resulted in less than 0.1% of GDP for the current fiscal year.
However, the report stressed that the Reserve Bank of India (RBI)’s higher dividend transfer is expected to cover the shortage. Higher inflows from central banks may provide substantial support for government finances when tax collection is under pressure.
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It noted: “We expect GST rationalized net income shortages ……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………… it notes.
The report said RBI’s dividend transfer and government focus on spending management will play a major role in maintaining the deficit.
The report also said that rationalization of GST may reduce collections in the short term, but is expected to increase tax revenues in the long term.
It warns that low nominal GDP growth this year could pose some challenges to tax collection. If revenue pressure persists, government spending could be under pressure in the second half of FY26 as authorities remain committed to the path of fiscal mergers.
Although expectations for direct tax collection so far lag behind, indirect taxation has performed better.
The report notes that growth in GST revenue and central consumption tax support the overall indirect tax flow, partially offsetting weaknesses in direct tax revenue.
In summary, the report said that despite slower growth in revenue pressures for GST rationalization and tax collections that exceeded expectations, it could achieve a fiscal deficit target of 4.4% of GDP in fiscal 26.
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