Centre sees no threat to FY26 fiscal deficit target

Scheme savings, non-tax surge to cover spending hike, tax gaps

- PRASANTA SAHU

DESPITE A PROJECTED tax revenue shortfall and higher subsidy spending in 2025-26, the government is confident that “scheme savings” and robust non-tax revenues will fully offset the gap, keeping the fiscal deficit on track to fall to 4.4% of GDP from 4.8% in FY25,sources told FE.

The additional negative fiscal impact is seen at around %1.15 lakh crore, going by the extra subsidies estimated for food and fertiliser, compensation tooil marketing companies (OMCs), and likely net tax revenue shortfall duetoincometax reliefand goods and services tax (GST) reliefannounced recently.

Going by the gross tax revenue receipts (GTR) in H1FY26, the GTR shortfall could be %1-1.3 lakh crore in FY26.Assuming that there will be some improvement in tax collections in H2 due to increased consumption from direct and indirect tax cuts, the net taxrevenue shortfall (post 42% tax devolution to states and J&K) is seen at around %50,000 crore in FY26. Usually, the Centre collects 47-48% ofthe annual targetin H1, but this time around it is lower at 44% of the annual target of %42.7 lakh crore.