Key Highlights
- As a result, it may have to cut or delay some spending and depend more on money transferred from the Reserve Bank of India (RBI) and public sector companies. WATCH: Former Finance Secretary Subhash Chandra Garg Shares Vision For Viksit Bharat“There will be some cuts in expenditure to meet the shortfall in revenue... there is no other option,” said Anitha Rangan, chief economist at RBL Bank. Why Is Government Income Under Pressure?Although India’s economy grew 8.2% between July and September, government income has not kept pace. Net tax collections until November 2025 are 3.4% lower than last yearCollections are less than half of what the government planned for the full yearThis gap means the government must either borrow more or spend less, and economists say it is choosing the second path. WATCH: What Should FM Nirmala Sitharaman Prioritise As India Eyes Viksit Bharat 2047?How Is the Government Managing the Gap?One key support has come from the RBI’s dividend payments - essentially profits transferred by the central bank to the government.
- These transfers have jumped nearly 5,000% over the past two decades, RBI data shows.“Especially with the kind of tax shortfall we are experiencing in the current fiscal year, the excess dividend has come in really handy.
- Otherwise, the government would have had to pull back expenditure a lot (more) to meet the fiscal deficit target,” said Dhiraj Nim, economist at ANZ. India to stick to fiscal consolidation path in February 1 budget: Reuters PollWhat Is the Fiscal Deficit and Why Should You Care?The fiscal deficit is the gap between what the government earns and what it spends.
- Economists expect it to fall to 4.2% of GDP next year, from 4.4% this year and 4.8% earlier. A lower deficit helps:Keep interest rates stableImprove India’s credit ratingReduce pressure on future taxpayersIndia received a sovereign credit rating upgrade from S&P last year, partly due to this discipline. Borrowing Will Still RiseDespite tighter spending, the government is expected to borrow more money next year - around Rs 16.27 trillion, up from Rs 14.6 trillion this year. At the same time, economists say state governments will shoulder more financial pressure, borrowing nearly as much as the Centre.“State governments may see their public debt ratios rise for the next few years, as they do not have a similar consolidation path,” said Pranjul Bhandari, chief India economist at HSBC. Big Push on Infrastructure - But Is It Working?The government is expected to raise capital expenditure (capex) to a record Rs 12 trillion in 2026–27.
- Capex refers to spending on roads, railways, ports, housing, and public infrastructure. However, some economists question whether this spending is delivering results.“The capex that you have done has not been so fruitful so far,” said Dhananjay Sinha, chief executive and co-head of institutional equities at Systematix Group.“And if those expenditures do not translate into private investment, higher employment and income opportunities, then the debt and the infrastructure you create get underutilised.”.
